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Is Norway the New Switzerland?

Thursday, 8 Sep 2011 | 11:08 AM ET

The Swiss National Bank is putting the kibosh on the franc's safe haven status, and investors are turning to Norway instead. But it could be too much too fast.

Between recession worries, central bank interventions, and commodity ups and downs, currencies have been on a tear. Understandably, investors have been looking for a port when storms flare up, and Norway has been looking especially appealing since the Swiss National Bank set a minimum level for the franc.

The Norwegian krone "remains the one non-traditional major that has consistently outperformed as a euro risk and global carry hedge," says Lena Komilev, global head of G10 strategy for Brown Brothers Harriman, in a note to clients.

But there are problems with that plan. "I can fully understand the argument that that would be the next logical place to go," what with Norway's oil exports and relatively robust economy, says Simon Derrick, chief currency strategist at Bank of New York Mellon. "Nevertheless, it's still a small market. That's the key because we know the scale of the money that's come into the euro zone and has to move elsewhere. You need a big, liquid market." Komilev points to another concern. "The current market environment continues to lends itself to periods of disorderly deleveraging, which will continue to flock assets into cash, limiting the downside for the dollar" against the krone, she says. The shortcomings are similar for Sweden, where other investors have been venturing.

The upshot: the krone - and to a certain extent, the Swedish krona - could be very short term havens. But you'll have plenty of company, so be prepared to be nimble if sentiment shifts.

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