02 Feb 2023 3 min read

Quality Street: A tale of two currencies

By Christopher Teschmacher

If buying high-quality assets was all you needed to do to deliver attractive returns, investing would be easy. But as currency moves over the past year show, the price you pay matters too…


In 1936, Harold Mackintosh invented Quality Street chocolate tins. In the subsequent 87 years, over 20 treats from the tin changed or disappeared, as the perceived ‘quality’ of some of the sweets fell and replacements were brought in. In 2017, YouGov even did a poll to find the nation’s favourite.

Of course, quality sounds like a desirable feature for investments too, but as investors we need to be sensitive to both quality and price. Popular assets are often more expensive, so if assets become too popular, we may choose to jettison them from portfolios, while less popular assets can potentially be more exciting prospects.

Here’s how our thinking on the Hungarian forint and the Swedish krona has evolved over the past year – a tale of two currencies that neatly illustrates the need for investors to balance quality with price.

Toffee Penny – the Hungarian forint

Alongside the Toffee Penny (11th place in the YouGov poll), another unloved coin is the Hungarian forint. Hungary’s credit story isn’t great, with high public debt, high external debt, large current account deficit and inflation running above 20%. However, despite being perceived as ‘low quality’ its assets have performed well recently.

With valuations too low to ignore, we took a positive view on the forint last summer. We expected incremental improvements from an otherwise dire story: fiscal tightening given the high public deficit and debt, the central bank turning hawkish amid high inflation and currency weakness, and the country showing sufficient progress to receive the ‘at-risk’ EU money.

Progress was slow at times, but the central bank doubled down on tight monetary policy and the Hungarian forint rallied. After all, it’s hard to be short a European currency that offers a 16% annualised carry.

Investing in Hungary, however, still comes with a decent amount of risk. Its assets are volatile and tend to correlate positively with general risk appetite. This isn’t great in a multi-asset context, as you get weakness exactly when you don’t want it.

So, with its price having now risen and the country’s recovery now well appreciated by the investor community, it’s time for us to become more cautious on Hungarian assets.

Honeycomb Crunch – the Swedish krona

Meanwhile, in Sweden – a country traditionally associated with higher-quality assets – the macroeconomic narrative has recently focused on the country's elevated interest rate sensitivity. House prices are down approximately 10-15% from their peak, yet recent data suggest that the rate of decline may have reached an inflection point.

While the scale of these declines is not beyond the expectations of the Riksbank, the central bank has stated that the implications of policy measures on housing falls outside its remit. Inflation, excluding energy prices, remains high, in line with the central bank's forecasts. However, the Swedish krona has weakened in response to the rate sensitivity rhetoric, which poses a challenge for policymakers’ efforts to control inflation.

We expect the weakness of the krona to play a more prominent role in the central bank's rhetoric in the future and believe the risks to the currency are now asymmetric. A prolonged interest rate hiking cycle by the European Central Bank could force the Riksbank to take bold action to prevent further krona weakness, while a reduction in inflationary pressures would ease the interest rate sensitivity argument and provide more room for the central bank to manoeuvre.

It's now crunch time, with the Riksbank’s next interest rate decision due next week. In the meantime, we have decided to take a positive stance on the Swedish krona, which we see as underappreciated compared with the euro.

Much like we believe honeycomb crunch is underrated, at only ninth place in the YouGov poll…



Christopher Teschmacher

Fund Manager

Chris is something of a perfectionist which may explain the raft of automated spreadsheets ensuring charts are properly formatted to Teschmacher® standards. Having become the resident quiz master, he keeps his colleagues on their toes with a steady stream of investment trivia. This worldly Dutchman has wanderlust in his blood – he was born in Australia and has lived in London, New York and Paris. He has since settled in London with his young family, although regular trips to the South of France suggest that ambitions to become a vineyard owner are still strong.

Christopher Teschmacher