The conflict in the Middle East has significantly reduced visibility on the outlook for the global economy. Energy price pressures are already materialising and will continue to filter through economies. Inflation is once again a concern, while growth prospects are weakening.
This environment calls for a more cautious stance, with a focus on resilient assets that preserve value while offering attractive returns.
Given these factors, we are incorporating the Norwegian krone across all portfolios.
Reinforced prudence
The global economy is navigating without a clear direction. Central banks and investors alike highlight the lack of visibility and the risk of adverse scenarios.
In such conditions, economic models based on limited forecasts may prove less reliable than usual. A prudent positioning is therefore essential to limit portfolio risk.
Increasing exposure to safe-haven assets within a diversified allocation is part of this approach. However, traditional safe havens (gold, bonds, and particularly US debt and the Japanese yen) have disappointed since the onset of the Middle East conflict.
At its current level of USD 4,600 per ounce, gold has declined by around USD 1,000 from its January highs.
Middle Eastern retail buyers, who account for nearly 10% of global demand and purchased approximately 270 tonnes in 2025, have reduced purchases amid weaker economic conditions. Rising energy costs are also weighing on Indian households, another key source of demand.
Even U.S. bonds suffer impacts
At the same time, concerns over inflation have pushed yields on US debt and other sovereign bonds higher. Unlike bonds, gold offers no yield.
Yet, rising inflation and increasing public debt in Western economies, expected to grow further as governments shield economies from energy price shocks, are also weighing on bond markets, which have broadly declined since the conflict began.
The Japanese yen has also underperformed. Typically supported by capital repatriation during crises, it has remained weak. Japan’s heavy dependence on oil and gas transiting through the Strait of Hormuz raises concerns about the economic impact of the conflict.
The Swiss franc continues to attract investors, but its appreciation is a concern for Swiss authorities, who have signalled a willingness to intervene. As a result, further appreciation appears limited, while yields remain low.
A solid store of value
Against this backdrop, investors face a shortage of compelling alternatives. While diversification remains key to risk management, many are seeking a reliable store of value.
Within this framework, we are (re)introducing the Norwegian krone across all portfolios.
Norway, like Switzerland, has a strong financial position. Public debt has risen to around 55% of GDP, compared to 15% for Switzerland, but the country benefits from a unique advantage: its sovereign wealth fund, the largest globally, with assets exceeding €1.9 trillion - approximately four times its GDP.
Sovereign fund spreads worldwide
Invested in over 7,000 companies, it holds around 1.5% of all listed equities worldwide. While drawing on this fund would be politically sensitive, Norway’s capacity to withstand financial stress remains strong, underpinning its AAA rating.
The krone also remains, in our view, undervalued against the euro despite a 7% appreciation since the start of the year. It offers attractive yields, with Norway’s 10-year rate at 4.4%, comparable to US levels and above those in the euro area.
Among AAA-rated countries, only Australia offers higher yields, at around 4.9%, but its currency appears fairly valued and offers less appreciation potential.
Additionally, while many currencies are negatively affected by rising energy prices, the krone benefits from them. Norway’s hydrocarbon revenues strengthen the economy and feed into its sovereign fund.
Continued global demand for reliable energy sources also supports investment in Norway’s energy sector, reinforcing the currency's demand.
Focus on capital preservation
The current period of heightened uncertainty calls for a forward-looking approach. Diversification remains essential, but so does the inclusion of assets that preserve capital.
As some traditional safe havens show limitations, the Norwegian krone appears well-positioned to support diversified portfolios. Given limited investment instruments due to Norway’s low debt levels, we do not see this as a deterrent. The krone is now included in all diversified portfolios, with a 5% allocation via a dedicated fund.