One of the world’s top investment banks has warned its clients that the kiwi dollar is “by far” the worst performing major currency in a recession.
In an investment note, JPMorgan Vice President of Global Currency Paul Meggyesi says the New Zealand dollar loses, on average, 7% to 8% of its value in a recession.
According to Bloomberg, Meggyesi’s research comes from currency analysis across the last five recessions.
“Recessions are when creditors get to ask for their money back,” he says.
The research comes after a tit-for-tat trade war between China and the US sparked fresh concerns about a looming global economic slowdown.
Although Meggyesi says that talk is “premature,” he says it is a “sensible” time to review contingency plans amid the likelihood of a further escalation in trade tensions.
He adds that the best currencies to own during a recession are the Swiss franc, Japanese yen and the Singaporean and US dollars.
Westpac Head of New Zealand Strategy Imre Speizer broadly agrees with Meggyesi’s assessment.
He says the kiwi dollar is one of the most sensitive currencies in the G10 – the 10 most heavily traded currencies in the world.
“When risk sentiment is strong, the kiwi goes up and when it’s down, the kiwi goes down.”
In times of recession, risk appetite is low and investors aren’t as bullish about the kiwi dollar; therefore the kiwi tends to drop quite strongly.
He says it’s the same with the Aussie dollar.
But when the global economy is performing well, the Aussie and kiwi currencies tend to perform well too.
“The reason why the money goes into Aussie and Kiwi when times are good is partly because both economies are very outward looking, very internationally exposed.
“When the world is performing well those two economies would be expected to perform well and the currencies reflect that.”
Speizer agrees that the Swiss franc, Japanese yen and the Singaporean and U.S. dollars would gain in value during a recession.
“Think of a spectrum of currencies, the Aussie and Kiwi would be at the extreme right end if that’s the riskiest.
“And on the extreme left you would have the yen and the Swiss franc.”