What Riots? Now May Be Time to Buy Swedish Krona
Molotov cocktails and torched cars are a far cry from the calm generally associated with safe haven investment destinations. But Sweden is different.
A week of violent riots during which schools were vandalized and police pelted with stones in poor immigrant suburbs has not deterred investors. And while it is no longer the safe haven it once was, the Swedish krona remains attractive, analysts argued. Moreover, now may be the time to buy.
Aurelija Augulyte, senior FX strategist at Nordea, told CNBC that long term she expected the krona to remain strong. Short-term it could be hurt by a global selloff in equities, which might offer a buying opportunity.
Concerns that the Federal Reserve will start scaling back stimulus measures have sent global markets lower in recent weeks. The krona's close correlation with global equities may make it an unlikely safe haven candidate, but its AAA-rated government debt and relatively stable growth nevertheless mean it is an attractive investment for many -- it reached a 12-year high against the euro in August 2012.
(Read More: Riots Erupt in Sweden: The Nordic Welfare Myth?)
"Global risk sentiment is now the big question," Augulyte said. More long-term however, she pointed out that the krona has been undervalued for many years, meaning we are still in a process of adjustment.
Danske Bank analysts also expected the Swedish krona to appreciate. Their view is strengthened by an assumption that the Swedish central bank, the Riksbank, will not cut rates further this year.
Knut Hallberg, senior economist at Swedbank, was equally upbeat, and said that besides the low likelihood of a rate cut, strong gross domestic product (GDP) numbers and a robust purchasing managers index (PMI) reading were also reasons to be positive.
"We are quite bullish about the Swedish krona," he said. "The Riksbank meeting in July will be critical for the krona."
He acknowledged that a substantial fall in the stock market could hurt the currency, but was positive over a three-month horizon, pointing out that the country's growth behavior remains "ok".
First-quarter GDP for Sweden rose by 0.6 percent quarter-on-quarter, against a contraction of 0.2 percent in the first three months of 2013 for the euro zone.
The riots have perhaps shattered the illusion of the Nordic welfare model as the great equaliser, but Hallberg noted that foreign investors were still buying Swedish assets.
"It is not the same safe haven, but the Swedish case is still valid," he said.