Investors Search for Safe Markets
Although government bonds issued by the United States, Germany, and Japan are still the main safe havens for investors, trends now show that the slowing economic growth in America and China, combined with the European debt crisis, have pushed investors to search the globe for safer markets. Countries that were once considered on the frontier of the investing world, like Norway, Finland, Sweden, Canada, and Australia, have been experiencing a rush of money from American investors looking to move abroad. Common market characteristics in these countries include having little of the risk, or outsized returns, that were once attractive prior to the current global financial crisis.
This theme of investing in countries a very minimal risk of default has dominated driving flows of money throughout the world since the financial crisis began circa 2008. Following the eruption of American mortgage bonds, this trend has intensified further with the European debt crisis. Countries that were once considered safe investments, like Spain and Italy, are now experiencing an exodus of foreign bond investors, which is even affecting the economies of strong European Union countries like Germany due to the possible Euro breakup. These events have shifted foreign investment into safer Scandinavian markets, particularly in Norway where rates have been at a record low.
When examining the Norwegian economy, it's easy to see why the country's banks, like DNB, have experienced immense growth in an era of economic turmoil. While rates on Spain's 10-year debt ranged from 6.5 to 7.5 percent, Norway's remained at about 1.8 percent. The Norwegian unemployment rate has hovered around 3 percent in recent years, and the nation is a part of an exclusive club that actually has a budget surplus. Norway also has the additional security of knowing that if the government did ever have problems repaying bondholders, it could tap into some of the country's oil reserves. For these reasons, Norway has been considered the world's safest bet for buying insurance on government bonds, leading American investors alone to recently place around $5 billion into Norwegian banks.
In spite of the benefits and security of investing in safer markets, an immense rush of money can still pose serious problems to a country's economy. In Canada, the ample money available to the nation's banks has helped its citizens in obtaining mortgages, while simultaneously raising home prices and concerns about a housing bubble. Norway has experienced similar household debt, which has driven home prices to levels that Norway economists have labeled unsustainable. Importing foreign currencies has also increased the value of currencies like the Norwegian krone, evidently making Norwegian exports less attractive to international markets. Switzerland, another safe-haven country for foreign investments, has had to be aggressive with its central bank in holding down the value of the franc by using its reserves to purchase other currencies.