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Singapore dollar still draws safe haven seekers

Recent alarmist commentary may have stirred up concerns about Singapore's economy, but in the midst of the emerging market rout, safe-haven seekers' faith appeared unshaken as they scooped up its currency.

"We have noted its safe-haven status within the Asian region is getting stronger in past years. So when you have a broad risk off, in general the Singapore dollar will outperform," said Ju Wang, senior foreign-exchange strategist at HSBC.

(Read more: Long gold as a crisis hedge: A loser's game?)

Tarek El Sombati | E+ | Getty Images

Earlier this week, global markets largely sold off, but the Singapore dollar strengthened, with the U.S. dollar fetching as little as 1.2666 on Tuesday, compared with around 1.2790 Friday. Against the currency of its neighbor Malaysia, the Singapore dollar has touched its highest level since 1998.

"As long as we continue to see worries over emerging markets for whatever reason, then Singapore may still benefit from the safe-haven tag," said Song Seng Wun, head of research at CIMB.

Singapore benefits from being the only Southeast Asian country considered a developed, rather than an emerging, market as well as from a triple-A rating on its debt. In stark contrast to most of Asia, the country also has a reputation for keeping corruption to a minimum, tying for fifth place globally as among the least corrupt countries in Transparency International's annual Corruption Perception Index.

(Read more: Seeking safe havens? Analysts, advisors point to liquid alternative funds)

Recently, however, Forbes columnist Jesse Colombo sparked controversial concerns after claiming the city-state's economy was in the midst of a ballooning credit bubble and faced risks of an Icelandic-style economic crash.

Singapore's central bank, the Monetary Authority of Singapore, felt the need to reply: "serious observers and investors are not in doubt about the country's financial health," it said in a statement.

Giving the safe-haven view a bit of a fillip recently, the Singapore dollar, often referred to as the "Sing," isn't free-floating and is instead pegged to a basket of currencies.

(Read more: Economist defends Singapore bubble claims)

"It's managed within a band and it has been trading near the bottom of the band the last few weeks," Daniel Martin, an economist at Capital Economics, said. "That's kind of attractive to investors. There's kind of a limit to the downside."

HSBC's Wang also noted the Sing had moved below the midpoint of the bank's estimate for the NEER, or nominal effective exchange rate, for the currency basket.

"Since last year, every time it's below the midpoint, the Singapore dollar's valuation versus its trade partners is getting attractive," she said.

To be sure, it isn't clear the Sing's climb is sustainable or would withstand a more extended market rout.

"When people want to take money off the table, the safe-haven tag may not be helpful," Song said. "We can't avoid spillover from contagion in Southeast Asia."

Others noted safe-haven chasing isn't what it used to be.

"Semi-reserve currencies" aren't needed as much anymore, said Mark Matthews, head of research for Asia at private bank Julius Baer. With the developed markets – Europe, Japan and the U.S. – showing economic improvement, "the scarcity value of these mini-reserve currencies is diminished," he said.

(Read more: Data set in motion a strong year for Singapore)

He expects the Sing's climb will only be temporary, noting it hadn't fallen much from its recent highs, shedding around 5 percent since the 2011 Greek crisis, compared with the Australian dollar's around 20 percent fall since then.

Matthews noted the city-state's inflation – a primary reason for allowing the currency to strengthen – is likely to decline going forward as property and car-ownership costs come down. He also believes the rise in the Singapore dollar has made it less competitive in the region.

"Add it all up, I don't see a lot of reasons the Singapore dollar should go up," he said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1