Euro Emerges as a Surprising Safe Haven, Second Only to Gold – HSBC
- admin cys
- Jul 30
- 3 min read
A Report by CYS Global Remit Counterparty Sales & Alliance Unit
In a market characterized by policy volatility, geopolitical disruptions, and unpredictable asset relationships, the euro has unexpectedly emerged as a reliable constant. According to a recent HSBC study, the euro ranks as the second-most effective safe-haven asset, just behind gold, for safeguarding portfolios during periods of stress. This revelation may surprise many Asia-Pacific (APAC) investors, as conventional wisdom has long favoured developed market (DM) bonds and the Swiss franc (CHF) as the go-to safe havens during times of volatility. HSBC’s findings challenge this perspective and offer new insights into protection strategies in today's complex market landscape.
“Gold remains the top safe haven,” HSBC analysts noted. “But the euro demonstrates significant safe-haven potential.”
The Euro as a Defensive Asset
HSBC employed bootstrapped return simulations to evaluate the risk-mitigating properties of various asset classes. This method, which simulates millions of potential return scenarios using historical data, provides a more comprehensive understanding of asset behaviour across different market conditions without relying on fixed correlation assumptions.
The results were clear: while gold remains the most robust hedge, the euro performed exceptionally well, surpassing the Swiss franc in numerous scenarios. Its role as a currency-based diversifier has notably increased.
“Although the euro's advantage over the CHF is marginal, the statistical evidence confirms its capacity to enhance outcomes in multi-asset portfolios,” the report stated.
This marks a significant shift, given that the euro was historically regarded primarily as a transactional currency or regional reserve asset. The euro’s evolving role as a resilient hedge reflects broader trends: enhanced fiscal coordination in the eurozone, stable central bank policies, and growing global demand for euro-denominated debt. Traditional Safe Havens Under Pressure
The report also cautioned against outdated market assumptions, particularly the belief that DM sovereign bonds inherently offer protection during equity downturns. HSBC suggests this dynamic is less reliable.
“DM rates—once dependable safe havens—now show less clear evidence as effective equity hedges,” the analysts pointed out.
This finding is particularly relevant for APAC investors, where many large portfolios, including superannuation funds in Australia, sovereign wealth funds in Singapore, and insurance-linked portfolios in Japan, continue to heavily invest in U.S. Treasuries, German Bunds, or JGBs for stability. However, recent years have seen increased bond-equity correlation during stress periods, especially with macro factors like inflation or central bank policy driving volatility. As interest rates remain elevated, traditional 60/40 portfolios are increasingly scrutinized.
Gold and Euro Excel in Realistic Portfolios
To evaluate real-world asset behaviour, HSBC simulated portfolio performance using common asset allocation frameworks, particularly those with 40–60% equity exposure. While short-duration interest rate assets performed well in unconstrained portfolios, gold and the euro led in terms of return-to-risk efficiency when equities were introduced, typical in most institutional or retail portfolios.
“Bootstrapping expected returns is more crucial than static assumptions about correlations,” the report emphasized, advocating a data-driven, empirical approach.
Although gold’s role in times of geopolitical and economic turbulence is well established, the euro’s strong performance marks a notable evolution in strategic asset allocation discussions.
The euro’s attributes, including liquidity, integration with global financial systems, and lower volatility compared to many emerging market currencies, make it increasingly valuable for currency allocation, particularly for global or cross-border portfolios.
Implications for Asia-Pacific Investors
HSBC’s findings hold significant implications for APAC investors:
Reevaluate Currency Risk Management APAC portfolios heavily weighted towards USD, JPY, and AUD should consider the euro as more than just an FX pair. It deserves a strategic place in a portfolio’s defensive structure.
Gold Remains Key, but Fiat Alternatives Matter While physical gold and gold ETFs remain central to hedging, especially in Singapore and Hong Kong, investors seeking fiat-based alternatives should recognize the euro’s potential benefits.
DM Bonds Are Less Reliable Hedges With correlations shifting and inflation pressures persisting, long-duration bonds are less dependable during equity drawdowns. Investors may need to shift some fixed income exposure to the euro or short-duration sovereigns aligned with stable central bank policies.
Bootstrapped Modelling Offers Better Insights APAC CIOs and strategists might benefit from integrating bootstrapped approaches similar to HSBC’s into their risk frameworks for a more realistic, future-focused view, given today’s complex environment.
“The euro’s resilience in mixed-asset portfolios underscores its growing role in stressful times,” HSBC concluded.
Conclusion: Rethinking the Euro’s Role
As 2025 continues to surprise with macroeconomic shifts, HSBC’s analysis reveals the evolving nature of safe havens. While gold holds its traditional role as a stabilizing force, the euro has proven itself as a viable, fiat-based safe haven with significant benefits for diversified portfolios. For APAC investors—whether managing private wealth, institutional mandates, or sovereign
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