safe haven assets

• Safe haven assets are those securities that investors turn to during periods of economic slowdown or risk aversion

What are safe haven assets?

Safe haven assets, also known as defensive assets, are certain financial assets that, in times of increasing risk such as times of crisis, uncertainty or economic weakness, can maintain their stability and even increase their price or value.

In addition, they are assets that are not very sensitive to economic cycles, both expansive and recessive.

When an economy suffers episodes of high inflation, high unemployment or volatility scenarios in the financial markets, the value of safe-haven assets remains stable, giving confidence.

Characteristics

Safe haven assets have three characteristics that make them relevant in times of crisis:

• Liquidity

A good safe haven asset should be able to be converted into liquid money easily.

• low volatility

A safe haven asset must remain solid in its value and stable as an investment.

• Low probability of default

These securities are guarantors in their payment through the support of institutions with high credit quality that can serve as a safeguard for the investment.

Main haven assets

There are some defensive assets that are more recurrent:

• Gold

This metal is a safe haven asset during times of market stress and when there is high inflation. Unlike other values, it has a physical and tangible character. On the other hand, it does not pay interest or dividends, so its benefits are generated by the revaluation of its price.

• US public debt

US public debt bonds are classified as safe-haven assets of high credit quality, according to the rating of risk rating agencies. The public associates them with a safe investment, but it must be remembered that the level of risk increases if the time period of the investment is extended.

• Foreign exchange

The currencies considered defensive are those of countries with stronger and more stable economies, such as the dollar, the yen, the Swiss franc or the euro. Currencies are highly liquid assets that can be easily converted into cash in the local currency.

• Actions

There are certain stock values that are traditionally defensive, such as those related to food or the pharmaceutical industry since, even if there is a recession, the demand is maintained.