Investment assets that are considered to be safer (safe haven instruments) are now certainly a major concern of financial market players along with the increasing concern about corona virus (Covid-19) and the number of deaths it causes. Safe haven is an investment asset that has a low level of risk, when the global economy is uncertain or there is geopolitical turmoil. That is, safe haven instruments assets are assets that are used as an escape when global economic conditions are considered unsafe.
Meanwhile, assets considered as safe investment assets include gold, US dollars and Japanese yen. Gold is considered as a hedging asset because of its rare availability, much demand, and intrinsically valuable.
Market can be up and down like rollercoaster caused by suddenly effect in economic fundamentals, increased geopolitical risk, or natural disasters. Therefore, investors will usually get out of risky positions and enter assets that are safer against market movements that are often unpredictable.
Some safe haven instruments
Over the past few years, gold has been valued as a safe haven investment destination especially when there is turmoil in the currency market. The position of gold as a precious metal is in demand throughout the world, with limited supply and high intrinsic value. In the investment portfolio, gold is also a type of hedging asset or inflation hedging. In addition to gold, the Swiss Franc is also considered a safe haven because of the Swiss economy’s policy of being very cautious, with very strong economic fundamentals and debt position which is considered to be at a safe level.
For the same reason, the Japanese Yen is also considered a safe haven with very strong economic considerations with a very low inflation rate approaching 0% so that the value of the Japanese currency is considered quite stable.
Accordings to CNBC, throughout the year 2020 investors seem to continue for hunting for these assets to tap portfolio assets so they are not so miserable in their losses triggered by the spread of the corona virus or covid-19 which weakens the global economy. This is reflected in the movement of each heaven asset prices that feel comfortable parking in the green zone.
In addition to the US dollar and yen, the Swiss franc is also often regarded as a safe haven currency, but its influence is still smaller than the US dollar, yen, gold, and bonds. Since the beginning of the year, the US dollar has strengthened 2.95% as reflected in the dollar index to 99.23. The dollar index, which is also commonly called the USDX, shows the position of the greenback against six other major currencies namely the euro, yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.
CBA Analyst Vivek Dhar from Bloomberg saying, that demand for safe haven investment assets is driven by market concerns about global growth that is believed to be weak if the spread of the corona virus does not end soon and it seems that it will not end soon.
The definition of safe haven isntrument is not limited to the types of traditional assets above. If in a very worst case economic or market condition, there is one type of asset that has not declined compared to all other asset classes, then at that time the asset can be categorized as a safe haven type.
For example, with the development of technology, alternative types of investment such as crypto currency, since last year began to be considered as a type of safe haven assets, especially because the increase in the value of crypto currency is precisely at the time of increasing popularity of the populist or anti-globalization, tensions in North Korea and withdrawal of stimulus monetary world central bank.
Although it is called safe haven, these assets are not entirely safe from risk. For example, government bonds are still exposed to market risk, even though the potential risk is not as big as other risky assets such as stocks. So, by knowing the safe haven assets that exist in the market, investors can diversify the asset class to optimize yields either when a positive economic situation or when the economy is deteriorating.