Krona Rally Has Further to Go, CEO of Swedish Pension Giant Says

The newly-appointed chief executive officer of Swedish pension giant AP1 says she doesn’t expect thebest-performing major currency of the year to end its rally any time soon.

“The combined action of monetary and fiscal stimulus around the world has kept risk appetite up, and the SEK tends to do well in these kind of circumstances,” Kristin Magnusson Bernard said in an interview in Stockholm.

“You also have the flow arguments, as a lot of investors have been structurally underweight the SEK for so long,” said the 41-year-old, who heads a state pension fund with about $40.6 billion under management.

The krona has strengthened about 7% against the dollar so far this year.

The rally has taken place against the backdrop of a relatively more accommodative monetary policy stance by the Federal Reserve and the European Central Bank, and Bernard doesn’t see any krona-supporting factors “expiring” in the near term. Which means that “the SEK probably has some more room to go.”

Bernard wouldn’t disclose the fund’s exposure to the krona. However, “if you have a constructive view on a currency, you typically take a long position,” the former ECB economist said.

As far as the equity markets are concerned, it’s been “one hell of a ride” during the coronavirus outbreak, she said, adding that the important lesson learned is to be ever mindful about liquidity issues.

“Market turmoil can be a good time to add on risk. But for that you need liquidity.”

Bernard, whose previous jobs also include being the global head of Macroeconomic Research at Nordea Bank, dismissed concerns about soaring valuations in the stock markets. U.S. tech giants, which dominate the indexes, have mostly benefited from the pandemic, so one should be “very careful” about using the stock market to assess the state of the real economy.

And if one believes that low rates are here to stay and that the economy will continue to be supported on the fiscal side, then the current valuations “aren’t as outrageous as might seem at a first glance.”

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