Photographer: Freya Ingrid Morales/Bloomberg

The $120 Billion Case Against Betting Denmark’s FX Peg Will Fail

  • ATP CEO: Denmark can defend peg ‘under any and all’ scenarios
  • Fund hasn’t altered krone exposure/hedging ahead of Brexit

The man running Denmark’s biggest pension fund is convinced nothing can break the country’s euro peg.

Carsten Stendevad, the 43-year-old chief executive officer of ATP, says even the risk of a British exit from the European Union can’t change that view. So anyone betting against the peg isn’t just taking on Denmark’s central bank, but challenging the position of a $120 billion fund with assets equal to over a third of the country’s gross domestic product.

Carsten Stendevad
Carsten Stendevad
Photographer: Jens Honore/ATP

Stendevad is speaking out as the threat of a so-called Brexit drives investors into the safest assets and puts pressure on Denmark’s currency regime. The AAA-rated nation, which has a 6 percent current account surplus of GDP, already intervened in May to weaken the krone and Danske Bank estimates interventions are continuing this month. It’s the first time the central bank has acted to drive down the krone since February last year, when the peg was under a speculative attack.

Stendevad told Bloomberg that ATP has “not changed our hedging strategy in response to the U.K. referendum. This reflects our faith in the Danish central bank’s ability to uphold the currency peg under any, and all, circumstances.”

For a story on Brexit and the Danish central bank, click here.

ATP had about 72 percent of its assets in Danish kroner at the end of last year. That’s slightly less than the average over the past four years and down from 78 percent in 2012, according to the fund’s annual reports.

“Today, the percentage of our assets in Danish kroner is virtually unchanged since year end,” Stendevad said.

Denmark’s krone is testing the same strong levels it reached at the height of the peg crisis last year, when Switzerland’s decision to move to a freely floating franc prompted conjecture the Danes might follow.

Now, with Britain’s future in the EU at risk, Danske Bank is advising clients to hedge for Swiss franc strength and pound weakness as the safe-haven trade dominates again.

Currency Pegs

But it’s worth keeping in mind that a British decision to stay in the EU will probably trigger a so-called relief rally, according to Nordea Bank. In that event, the pound and risky currencies will do well, while haven markets such as Scandinavia will take a hit. Nordea sees a 60 percent probability that the U.K. will stay in the EU.

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