Vang SJC

In investing, safe-haven assets are assets that investors favor in time of crisis and turmoil because of its stability. For instance, when inflation is expected to rise which cause currency to depreciate, gold will be considered a safe-haven asset, because it is not manipulated by interest rate, and government’s gold is limited, they cannot treat it like fiat currencies which can be printed as many as they want. Safe-haven assets are different in different circumstances, and depend on investors’ perception. Some traditional safe-haven assets are U.S. dollar, Japanese yen, Swiss franc, Great Britain pound and sovereign bonds.

Gold has reputation for being a safe-haven asset in time of market turmoil. Whenever there is economic uncertainty, investors often flight to gold. Nevertheless, investors must question “what is the real value of gold?” as gold price has been strongly volatile in recent time, partly because of Fed’s manipulation.

Other safe-have assets are U.S. dollar, Japanese yen, Swiss franc is favored because investors have confidence in their value and stability. However,  reality shows that U.S. economy has not recovered from financial crisis, while Japan’s growth is also sluggish. There is nothing to ensure their currencies’ stability. Market may not forget the incident when Swiss Central Bank unexpectedly removed euro cap, leading to market’s volatility and making the franc plunge to its record low level. Who can say the currency is stable?

Another safe-haven asset is sovereign bonds which is backed by governments.

In general, it is hard to consider anything as safe-haven assets in the current complicated context (including Grexit and Fed’s rate hike). To minimize risks, investors should take advantage of low-borrowing cost to diversify their portfolios.

Hanh Nguyen