Investors ignore nordic housing bubble risks as hunt for havens picks up

Bond and currency investors in Europe have flocked to Scandinavia to escape the euro area’s debt crisis. They may need to rethink their bets as the risk of asset bubbles threatens to trigger losses in Norway and Sweden.

The notion that the Nordic region is a haven “is really a false perception,” said David Deddouche, a foreign-exchange strategist at Societe Generale SA in Paris, in an interview. “The risk is that at some stage there is a domestic development which pushes every investor out of the market at the same time and it is going to squeeze heavily. It’s quite dangerous.”

The risks aren’t reflected in the countries’ bond or currency markets, which investors are treating as havens from the euro area thanks to fiscal surpluses in Sweden and Norway. Sweden pays less than Germany to borrow for 10 years and Norway’s government bond yields slumped to a record-low last week, approaching parity with the largest euro-area economy.

Yet according to Robert Shiller, the co-creator of the S&P/Case-Shiller home-price index, the two Nordic countries are in the grip of asset bubbles that will damage their economies. He warns that policy makers should do more to protect their credit and property markets from imbalances. In Denmark, where a real estate bubble burst in 2007, home prices may have further to fall, he said.

Source: Bloomberg.com