By Ranjit Singh
THE Singapore dollar (SGD) and Korean won (KRW) have been touted as safe-haven currencies due to the proactive measures taken by their governments to rein in the Covid-19 outbreak.
Axitrader chief strategist Stephen Innes told FocusM that the SGD and KRW had shown resilience during the economic turbulence brought about by the outbreak.
“I would say that the SGD and KRW have demonstrated safe-haven characteristics during these turbulent times and have provided a safe haven where many currencies depreciated,” said Innes.
A safe-haven investment is one that is expected to retain or increase in value during times of market turbulence. Safe havens are sought by investors to limit their exposure to losses in the event of market downturns.
Innes said both currencies had shown resilience due to the proactive policies adopted by their governments to contain the spread of the virus.
The KRW had appreciated 6.72% against the US dollar year-to-date while the SGD had appreciated 7.49% in the same period. Currently, US$1 is equivalent to 1,226.5 KRW and 1.44 SGD.
The US dollar has appreciated against most currencies year-to-date, although the degree to which it has risen varies significantly. For example, emerging markets (EMs) have fared the worst as they are hit by a combination of a sharp slowdown in domestic demand, low real interest rates, a collapse in commodity prices as well as a significant shift in risk sentiment, which weighed on EMs with weak macroeconomic fundamentals.
That said, G10 (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States) currencies have also come under pressure as a large shift in risk appetite has favoured safe-haven flows.
Meanwhile, Bank Islam Bhd chief economist Dr Afzanizam Abdul Rashid told FocusM that the case for safe-haven investment was clear in view of the heightened volatility in markets currently.
“The case for safe-haven investments is wide and clear. The volatility in the equities market would mean chances of losing money are very high. The Volatility Index (VIX) has gone up to more than 80 points recently, a level which already surpassed the Global Financial Crisis (GFC) (period) in 2008.
“It is almost natural to shift the investment into safe havens such as government securities. Further, a lower interest rate environment would mean bond prices are also higher as the bond yields would normally move in tandem with the benchmark interest rate set by the central banks,” said Afzanizam.
With central banks around the globe slashing interest rates to record lows, investors would try to seek out alternative investments during these difficult times. Gold, which had been a safe-haven asset class for a long time, did not see a sharp spike as investors preferred to stay in cash.
However, Innes said gold still provided some refuge. With the current spot price at US$1,633 an ounce, Innes advised investors to take profit at that level as a pullback may be possible. — March 26, 2020