What role is the Swedish krona fit to play in institutional investors’ portfolios?

The stocky — a nickname derived from the country’s capital, Stockholm — used to be one of the ultimate bets on global growth, perking up whenever global equity markets did so because of its high exposure to international trade. Sweden’s exports total 50 percent of gross domestic product — a much larger share than that of several larger European countries such as France or Italy.

The currency’s reliably positive correlation with equities and other risk assets, however, has recently begun to fade. The Dow Jones Industrial Average put in an extremely strong performance in September, for example, but the Swedish krona eased down slightly.

If the stocky is no longer a global risk play, what is its new identity?

In the past “the stocky has always had a high beta to global growth,” says Daniel Green, currency strategist and vice -president at J.P. Morgan Asset Management in London. “When the global economy was strong, the Swedish krona did pretty well.” However, Green adds, “what’s changed for the krona now is that there’s been, to some degree, a safe-haven flow going into Sweden” — reducing the beta to growth.

The stocky’s recent safe-haven status was confirmed in May, when the U.S. and other stock markets plunged on global growth fears but Sweden’s currency dipped only slightly.

Green credits Sweden’s safe-haven behavior partly to favorable sovereign debt dynamics. The country’s gross debt, at 49.2 percent of gross domestic product, is under half the Organization for Economic Co-operation average of 99.2 percent. “The bonds are viewed as very creditworthy,” says Green.

Sweden’s “longstanding fiscal prudence” gives it “room for discretionary stimulus to support the economy if the outlook turns out to be weaker than expected by the authorities,” the OECD declared in its economic survey of Sweden, published Monday. This suggests that Sweden is light years away from the debt trap of the peripheral euro zone countries, which lack the elbow room to stabilize their economies, and hence their tax receipts, through fiscal easing.

Could this safe-haven identity be threatened, however, by further cuts in interest rates? On Tuesday Sweden’s Riksbank trimmed its benchmark rate by 25 basis points to 1 percent, blaming a “clear slowdown in the Swedish economy” on “the weak developments in the euro area.” Future rate reductions could reduce the appeal of the stocky by shaving yields on Swedish government bonds. The yield on the benchmark 10-year was 1.54 percent at the end of Tuesday’s European trading, 38 basis points below its gilt equivalent, but 15 basis points above bunds.