Safeguarding oneself in the event of having to leave one's home or country requires a carefully considered strategy, including both tangible and intangible goods. During economic or military crises, few assets avoid being overvalued.
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Currencies for a ‘black hour’
In moments of panic, people often swap illiquid assets, such as real estate, for more liquid ones, such as currencies, which lowers the value of most goods while boosting the value of cash. We are talking especially about those currencies that are considered safe: the US dollar, the pound sterling or the Swiss franc. An example is the outbreak of war in Ukraine, which caused the USD/PLN exchange rate to rise to a record high around 5.00. Therefore, investing in safe currencies may seem reasonable. However, there are limitations associated with cash, for example in the context of transport.
‘Safe Havens’
Faced with the bleakest scenario, investors look for so-called safe havens. These include, among others, currencies of developed countries, gold, precious stones and bonds. The king of metals is often associated with security in times of crisis, but historical analysis shows that it has not always been an effective protection in times of war. The data shows that in 44 percent of the cases following the outbreak of global conflicts since 1971, the price of gold rose. Although demand from central banks is driving the price up, the bullion cannot be considered a reliable ‘safe haven’. Owning jewellery or gold coins in physical form may have its advantages, but it is worth remembering that selling such assets in a crisis may involve a steep discount.
Source: Conotoxia own study
Government bonds are another option considered a safe haven, offering stability as they are priced in a country's currency and pay interest. Although bonds are not as liquid as currencies, the current attractive yields on Western government bonds (in the order of 4-6 percent) make them worth considering as part of an asset protection strategy.
Grzegorz Dróżdż, CIIA, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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