Last updated October 4th, 2023.
The world economy is facing uncertain times. Family offices and other large wealth managers are hoarding cash, while governments from China to Switzerland are buying up resources.
We’re not necessarily saying that a recession is imminent – nobody can predict the future. That said, building up a resilient portfolio is key.
Several assets have a proven history of outperformance in a recession. Frontier market real estate, consumer-focused businesses in countries with strong demographic trends, and other uncorrelated investments are a focus here at InvestAsian.
Regardless, holding a range of currencies in the bank (or maybe even a locked safe) is a good way to prepare for a recession. It lets you cheaply buy stocks, property, and other assets at a time when everyone else doesn’t have any cash.
This begs the question: what are the most stable currencies in a recession? You can’t buy assets (certainly not international ones) if the currency you’ve been holding lost its value while the recession happened.
We figured out which currencies have the best chances of holding value in a future recession. Here’s what we found based on their historical stability, economic strength, and capital inflow.
Singapore is Southeast Asia’s de-facto financial center. And because of recent events, they will hold onto their status as a regional hub more tightly than ever before.
You’re probably aware that Singapore’s only main competitor in the region, Hong Kong, is now going through a phase of instability and unrest. Singapore will surely benefit from Hong Kong’s loss as capital flows between the two Asian financial centers,
Nearly a decade ago, we wrote predictions on InvestAsian that capital would flow from Hong Kong into Singapore. This certainly did happen.
Billions worth of bank deposits moved from Hong Kong to Singapore over the past few years and this appears to be an ongoing trend. Either way, it’s positive for the Singapore Dollar.
Singapore is now Asia’s sole financial hub that enjoys a stable future without rising debt levels or an aging population. The “Lion City’s” competitors like Tokyo or Hong Kong can’t claim the same thing.
Regarding the SGD’s performance alone, it’s one of the most stable currencies in Asia and has consistently gained against other major world currencies across a multi-decade span.
Anyone who bought SGD around twenty years ago would have profited immensely based on its appreciation alone.
Here’s a 20 year chart of the US dollar compared to the Singapore dollar. The SGD gained above 30% since earlier this decade.
A rather surprising winner, Thailand’s Baht was the best performing currency in Asia over the past five years.
How did the Thai baht beat almost every currency in the world? In short, it was a combo of tourist money, heavy capital inflow, a healthy debt-to-GDP ratio, and solid foreign currency reserves. We have an entire article about this topic.
Either way, a result of the baht’s recent performance is that it now enjoys popularity as a safe-haven currency. Money from China, Japan, and elsewhere is flowing into Thailand at a near record pace as foreign investors try to find shelter from trade wars.
Thailand’s economy has always held a reputation of stability – even during recent recessions.
Ever since 1999, Thailand only suffered through two years of economic contraction. Analysts even have a name for this phenomena: “Teflon Thailand”. The Thai baht’s strength is merely a recent example of the nation’s odd resilience, despite ongoing structural problems in Thailand.
Of course, not everything is positive in Thailand. GDP growth remains weak for a developing market at below 3%. They also rely heavily on exports, the fairness of recent elections is being questioned, and the nation is headed off a demographic cliff.
Yet the Thai baht, for one, has achieved a reputation as being among Asia’s most stable currencies. Such a status could drive Thailand’s finance sector (and its economy as a whole) well into the future.
United States Dollar
Our website might be called “InvestAsian”. However, the greenback remains the currency of choice across numerous Asian countries.
Hong Kong’s dollar, the Macau Pataca, and UAE Dirham among others are pegged to the US dollar. Meanwhile, Cambodia is effectively a dollarized economy with all sizable transactions paid for in terms of USD.
The USD is the world’s most commonly traded and main global reserve currency. But perhaps more importantly, it was one of the world’s top-performing currencies over the past several years, leaving competitors like the Euro and Pound in the dust.
Some personalities (Peter Schiff, Jim Rogers, etc.) are famously bearish on the dollar and don’t consider it a safe-haven currency. They’ve typically held this opinion for decades… and haven’t been proven correct yet.
The facts are: the US dollar outperformed practically every single currency in Asia during the past few years. 88% of all currency trades involve the greenback. And it remains, by a longshot, the top global reserve currency.
Of the world’s most commonly traded currencies, the dollar is the best out of a generally bad bunch. Europe is reeling with instability. Likewise, Japan’s demographics are terrible and its economy has been stagnant for thirty years.
Here’s the reality: the USD has its problems. The Euro, Pound, Franc, and Yuan aren’t any better though. In fact, most of those have performed significantly worse by comparison.
Cryptocurrency is one answer to the fiat dilemma. With that said, bitcoin is now trading at below 50% its highs. Factually speaking, crypto is volatile and doesn’t yet have a history of outperformance during a recession.
While blockchain itself is revolutionary, critics argue that bitcoin is now 15 years old and could be inefficient, “old tech” in the grand scheme of things. Perhaps we’ll end up using a new coin entirely?
How to Buy the Most Stable Currencies in a Recession
You might be wondering: how can I purchase the Thai baht or Singapore dollar?
Obviously, you can buy the US dollar just about everywhere in the world. Any broker or bank worth their salt will also let you trade Singapore dollars, Thai baht, and other top global currencies.
Depending on your home country, you probably have better options though. Singapore has some of the world’s most stable banks. So if you aren’t Singaporean, why not open a bank account in Singapore and diversify your cash holdings a bit?
Similarly, Cambodian banks now offer interest rates exceeding 8% on their USD term deposits – far higher than anywhere in the states. Interest rates aren’t too bad at Thai or Singaporean banks either.
Buying all of the currencies above is simple. The question is, would you like to diversify outside your home country’s financial system and potentially make higher returns? If so, an foreign bank account might be worth considering.
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