The Swiss franc is not the only safe haven

In times of greater uncertainty, it is worth increasing the share of ‘safe havens’ in the portfolio. The Japanese yen and gold have benefited from this in recent months.

A metaphor often used on the financial markets has become very familiar in Switzerland – the notion of ‘safe havens’. This is because the Swiss franc is seen as a safe haven. In times of uncertainty, demand for our currency increases, causing its value to rise. Does this mean that Swiss investors should reduce the share of foreign investments and hold as many Swiss francs as possible given the anticipated uncertainty?

It’s not quite as simple as that. The Swiss franc is not the only safe haven. Other currencies also possess this attribute – in some cases to an even greater extent than the Swiss franc. This has been highlighted over the past few months.

The yen is safer than the Swiss franc

We bought more Japanese yen in our portfolios this spring because we know from experience that it usually appreciates more than the Swiss franc when there is uncertainty. This has applied even more so since the Swiss National Bank (SNB) began taking steps to counter the appreciation of the Swiss franc. The valuation of a currency clearly has to be taken into account too. If it is overvalued against the Swiss franc in terms of purchasing power parity, it is not worth going against this trend. However, the Japanese yen seemed to be significantly undervalued against the franc. So there were in fact two reasons to expect an appreciation of the currency. And the value of the yen has actually been on an upward trend over recent months.

Safe havens improve the stability of the portfolio during periods of greater uncertainty.

Gold as a safe haven

In addition to the yen, gold is also a safe haven in times of greater uncertainty from a Swiss perspective. Gold has its own special attribute. No-one knows the actual value of a kilo of gold. There is no fundamental data that determines the long-term price of gold. This means the price of gold can be volatile. However, gold has relatively consistently been a safe haven throughout history. That is still true today. Gold rises in value when there is uncertainty on the financial markets. We have seen that this year and our increased gold allocation in the portfolios has paid off.

Insurance against uncertainty

The opposite is of course also true: when there is greater confidence, safe-haven investments fall in value. This has likewise been seen in recent months. Both the yen and gold have suffered repeated setbacks. So relying on safe havens is not always the best option. Speculating on them in the short run is very risky and so is not a good strategy. Yet, safe havens do improve the stability of the portfolio during periods of greater uncertainty. The financial markets will enter one of these phases over the coming months. The economic risks have risen and there are still many political risks. For this reason, we are retaining our overweight position in Japanese yen and gold.

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