Column

The future of the Swedish krona

Anna Svahn

22 Sep 2023 | 2 min read

In the small, oblong country, the Swedes see how the krona is devalued month after month more and more against the Euro and US dollar (and most other global currencies with few exceptions). In May 2023, Statistics Sweden conducted a survey to measure Swedes' attitude to replacing the krona with the Euro, and unsurprisingly, support had increased to over 30 percent compared to just over 20 percent since the last survey.

Enough has already been said about how the decline of the Swedish krona is self-inflicted, but it bears repeating. An overly expansionary monetary policy that is not followed by tightening on the same scale always leads to a fiat currency's devaluation and eventual fall.

Now the krona is trading close to an all-time low against both the US dollar and the euro, and in the past few days we also saw the gold price in SEK trading at an all-time high. The question now is, is there any hope for our little currency going forward and what can be done to protect itself?

Gold, SEK

Past performance Is not a reliable indicator of future results.

The short answer is of course no, the Swedish krona is calculated but despite that there is absolutely room for volatility before the Swedes sooner or later say goodbye to the SEK for good. For those who want to protect themselves on the road, however, there are plenty of good alternatives.

Although gold has recently seen new highs, there is upside. As long as the Swedish krona is weak, Sweden will continue to import more inflation, which in turn will further strengthen gold against the krona. For those who want exposure other than a yellow stone, foreign shares are a good alternative and really anything that involves an escape from the Swedish krona.

The importance of considering the currency

It is not possible to compare the development of two different assets in different currencies and think that it says something about reality. For example, if we look at the S&P 500's development in USD and the OMXS30's development in SEK over the past 10 years, we can state that the S&P 500 has certainly performed much better than the OMXS30 in local currencies, but if we instead compare both indices in SEK and thus take into account the development of the Swedish krona against the US dollar, we see that the difference becomes even greater.

OMXS30 and S&P500 Index

Performance since 1 January 2012. Index levels indexed as at that date. Past performance Is not a reliable indicator of future results.

If you invested SEK 100,000 in the S&P 500 on January 1, 2018 and hid the portfolio in the chest of drawers, that investment would be worth SEK 416,545 today. If you had instead invested the same amount in OMXS30, you would have had SEK 197,800 today.

OMXS30, S&P500 and USDSEK

It is not possible as a Swedish investor today to have a negative view of the Swedish krona and still invest in Swedish assets and thus have a large exposure to SEK. For those who believe that we are seeing the end of the Swedish krona, the time to act may be now.

Mini Future

+1.26%

SEK per 1 USD

Long | Effet de levier: 7.81 | Strike: 9.35 SEK

Short | Effet de levier: 5.49 | Strike: 12.65 SEK

Risks

External author

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

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