Skandia, which oversees almost USD 70bn from its base in Stockholm, decided a while back to adjust its portfolio in anticipation of declines in the Swedish currency. But it wasn’t clear back then just how successful that strategy would prove. “What can one say, it’s so very strange,” Lars-Goran Orrevall, the head of asset management at Skandia, said in an interview with Bloomberg.
"For a long time we’ve had a strategy in our portfolio that we should have a lot of foreign currency as a protection in case the krona should weaken," he said. "It has been great to hold foreign currency during those times. Now, we are making loads of money in our portfolio on holding foreign currency, despite it not being a crisis of any sort."
Orrevall says the deep slump in the krona has taken him by surprise. Even though he’s making money on the development, he says the current valuation "doesn’t feel reasonable" given the strength of Sweden’s economy. He says the Riksbank’s monetary policy -- years of negative interest rates and quantitative easing -- is the culprit. The bank raised its main rate in December to minus 0.25 percent, but signaled another hike might not come until 2020.
"The Riksbank has had every chance to raise the rate, several times," Orrevall said. "Now, they at least have done it once. But it will be difficult for them to do another hike, given the rhetoric they are using." Meanwhile, the risk of a recession outside Sweden is ever present, according to Orrevall. "But that is normally based on central banks raising rates, and that hasn’t happened to any greater extent," he said. "It’s only the Fed that has done that, and they have also taken a break now. So who knows, the economy might just continue this way a couple of years more."
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