Step aside Switzerland.
Sweden and Norway will share the crown as Europe’s top safe havens in 2012 – at least according to Saxo Bank’s annual list of “outrageous” predictions.
Designed mainly to provoke discussion, this year’s list calls for Apple stock to fall by 50 per cent, Australia to drop into recession, and the European Union to declare a five to 10 day bank holiday to cope with a market crash.
Unlikely? Sure. But worth considering over a glass of egg nog, particularly in the case of Sweden and Norway, argues Steen Jakobsen, chief economist at the Danish bank.
“Of all our predictions this is one I have the highest faith in,” he said. “And the thing is, had I said it six months ago, people would have thought it was completely outrageous. They don’t now, which tells you something about the state of the world economy.”
The prediction goes like this: With Germany in the eye of the European Union’s debt storm and Switzerland aggressively devaluing its currency, investors will be drawn to the strong government finances of Sweden and Norway. Huge flows of capital will rush into the Scandinavian countries, driving rates on Swedish and Norwegian 10-year bonds more than 100 basis points below the German bund. As the value of their currencies soar, Sweden and Norway will be faced with a “Swiss syndrome” forcing their central banks to intervene.
Far fetched? Maybe. But both Norwegian and Swedish bonds are already on a “massive downward trajectory,” Jakobsen said. Swedish bonds are trading at 28 basis points below the German bund while Norwegian bonds are about 28 points above it. And Norway’s central bank warned earlier this year that it was prepared to cut interest rates to prevent an overvaluation of its currency.
“Of course it would be a very big surprise for the Riksbank and the Central Bank of Norway if this was to happen,” Mr. Jakobsen acknowledged. “But I think it’s one of the issues that policymakers have to get ready for.”
Other predictions to pick apart over the Christmas turkey:
-- A yet unnamed U.S. presidential candidate will throw his or her hat into the ring in 2012. This candidate will take advantage of widespread disillusionment with the U.S. political system (as Ross Perot did in 1992) and take the White House in November.
-- As the New Year begins, Basel III capital requirements will force banks to deleverage but the markets will show little interest in their assets. The result? A fire sale, a freeze on interbank markets and a run on banks as depositors doubt the guarantees of “insolvent sovereigns.” More than 50 per cent of European banks will end up in government hands.
-- Google’s Android platform and Amazon’s Kindle Fire will eat into a market currently dominated by the iPhone and iPad, causing Apple stock to plummet by half. “No company has ever kept its dominance for long and we think the same thing will happen to Apple in 2012,” said Peter Garnry, equity strategist at Saxo Bank.