Singdollar emerges as safe haven currency amid US dollar volatility: BOS CIO

[SINGAPORE] The Singapore dollar is increasingly being used as a safe haven currency in investors’ portfolios in recent years, as volatility in the US dollar prompts clients to diversify their currency exposure, said Jean Chia, global chief investment officer at Bank of Singapore.

Many of BOS’ clients in the region have traditionally held US dollar assets to diversify away from their domestic currencies, but this narrative is changing, especially since the US dollar fell more than 10 per cent last year.

“Gone are the days that we can rely on the US dollar as one of our safe haven currencies,” Chia said at Great Eastern’s Private Client Summit on Tuesday (Sep 8).

In contrast, the Singdollar is managed against a basket of currencies of the Republic’s largest trading partners, within an undisclosed band aimed at maintaining price stability. This makes it a “great destination that will also hold steady in the years to come”, Chia said.

The US dollar is expected to stay volatile as inflation remains elevated and the fiscal situation in the US continues to be uncertain.

Chia previously told The Business Times in January that BOS has observed rising interest among clients – particularly those from China, Hong Kong, Malaysia and Singapore – in diversifying away from US dollar exposure in the past two years.

“Long-term (US) government bond yields have been spiking up to decade highs, not without reason – expectations have now been fractured in terms of what the next five to 10 years will mean,” Chia said. “We cannot expect now to predict with high levels of certainty.”

Her comments came as US Treasury buybacks put renewed focus on the US dollar, as lower yields could weaken the greenback by making US assets less attractive to investors.

Despite these concerns, the US market is still attractive given the artificial intelligence trade, but the AI capital expenditure boom also benefits Asian markets, particularly in South Korea, Japan, China and Taiwan, Chia noted.

Nevertheless, it will be critical to discern from the winners and losers from AI, with opportunities depending on where companies sit within the ecosystem and how the technology develops, she said.

“Not everything that has AI in its prefix will make sense, just like dot com did not,” she added.

BOS’ three favourite markets now are China, Hong Kong and Singapore – which has become one of the best performers in the Asian region, with the Straits Times Index up around 24 per cent year to date.

“Even as we speak of the performance of AI, hyperscalers and the S&P500, the Singapore market holds for its defensive qualities, dividend yields and a strong government support through the equity development programme, which has attracted liquidity,” Chia said.