What are safe haven assets?

Safe haven assets are those assets that, in times where uncertainty or fear take over the markets, resist the volatility caused by investors' fear of such situations. Safe haven assets are a variety of asset classes ranging from commodities such as gold, government bonds or currencies that resist setbacks or uncertainty. Let's look at the characteristics of safe haven assets and the most important ones to follow.

What are safe haven assets?

Refuge assets are those assets that in times where uncertainty or fear take over the markets resist volatility caused by investor fear to such situations. These assets are sought after by investors who prefer to earn less money but keep their capital safe. Therefore, safe haven assets are those that offer security when uncertainty takes over the markets. At the same time, they are assets that are usually used to combat the effects of rising inflation. This is due to certain reasons, such as:

• The entities that issue these assets They have unquestionable credibility, since investors think they will never go bankrupt, which gives signs of solvency despite living in difficult times. These can range from governments of developed countries.
• History has shown that They are assets that have resisted all types of financial crises at a global level, such as raw materials such as gold or oil.

Characteristics of safe haven assets.

For an asset to be considered a safe haven asset, it must meet a series of characteristics that allow it to be classified within this asset class and can give it the reputation of offering security in turbulent times. These features are:

• Limited offer: That an asset that has value is scarce allows it to ensure a revaluation over time that benefits the interests of investors.
• Irreplaceable: There are many assets that throughout history have lost their status quo, but others continue to be maintained over time and are irreplaceable.
• Liquidity: It is extremely important that an asset has good liquidity so that prices are as accurate as possible and at the same time that investors can buy or sell assets without depending on whether there is no supply or demand available to carry out their operations.
• Maintains over time: Like the second point we mentioned, it is important that an asset can be maintained over time. For example, we can store gold and it will not deteriorate, but we cannot store cocoa beans for too long because they would lose quality.
• Functionality: It is also important that a refuge asset is functional, that is, that apart from resisting in turbulent times it also has a function in any situation.

Most popular refuge assets.

There are a number of assets that have earned entry into the select group of safe haven assets over time. Let's see which are the most notable:

Safe haven asset 1: US dollar.

For more than 50 years the US dollar has managed to be one of the most notable safe haven assets for its resistance to difficult times. In large part it is because It is the most liquid currency of the entire currency market. This position has also been carved out because a large part of business deals (especially oil) are traded with their currency, just as they also enjoy having one of the largest bond markets of all the world. Confidence in the US dollar was built with The Bretton Woods agreements of 1944, when the new world economic order was established that placed the US dollar as the reference currency worldwide. Despite having broken this agreement during the 1970s, the dollar has managed to maintain its hegemony over time.

Safe haven asset 2: Commodities, such as Gold.

Gold has been and will continue to be the safe haven value par excellence for much longer. Its scarcity properties and the liquidity of its market have allowed it to position itself as the reference asset in turbulent times. During the great crisis of 2008 we saw how gold appreciated strongly, just as it did during the previous Covid crisis or when the war in Ukraine began.

During economic crises, gold rises. When the economy regains strength, the gold metal loses its appeal.

Haven Asset 3: Japanese Yen.

Despite having a small population and having a smaller territory Compared to other world powers, Japan is the third largest economy globally. Its currency is considered a safe haven value since:

• Japan has experienced a trade surplus numerous times, which in turn allows foreign investors to invest in this country in times of uncertainty.
• In turn, the Japanese yen is a currency that enjoys low interest rates compared to other currencies. This allows investors to raise capital by paying less interest and reinvest it in riskier assets.
• Like gold, the Japanese yen already has earned the safe haven label, so in times of uncertainty it is one of the currencies that benefit the most from uncertainty.

Haven Asset 4: Swiss Franc.

Another currency considered a safe haven asset is the Swiss franc. Investors' reasons for choosing this currency are because they prefer the Swiss franc as a safe currency due to its political neutrality at the government level, its strong economy and the highly developed banking sector that they have.

At the same time, separating from the European Union They have turned it into a refuge when fear or uncertainty takes over the markets. For example, during the eurozone crisis, so much money was flowing into the Swiss franc that the Swiss central bank (SNB) was forced to carry out a temporary monetary correction against the euro to try to weaken your national currency.

Safe haven asset 5: Bonds from some governments.

Bonds are other assets that have earned entry into the safe-haven asset category over the last few decades. This is because in times of uncertainty, investors They seek to protect their capital from volatility that can occur in certain periods, which can be solved by investment in fixed income assets that ensure a fixed profitability without being affected by the vagaries of geopolitics or other factors.

Haven Asset 6: Defensive Actions.

Another asset class that has earned a position as a safe haven asset is defensive stocks. This is because tend to outperform the equity market during a recession although their advances are modest in periods of economic goodness. These stocks are companies that make up the basic consumer sector, such as public services, food, health, energy, etc. They are considered refuge assets since their demand for goods and services usually remains stable even during periods of uncertainty. Additionally, they are one of the few actions that usually distribute dividends even in economic crises.