(Bloomberg) -- If a U.S. or global recession is looming, it’s time to own the Swiss franc, Singapore dollar, U.S. dollar and Japanese yen -- and ditch emerging market currencies, according to analysts from JPMorgan Chase & Co.

“Recessions are when creditors get to ask for their money back,” analysts including Paul Meggyesi said in a note dated July 6. “Three of the top four currencies to own during a recession are those of countries that boast extremely strong external positions.”

The yen is the cheapest of the recessionary hedges, while the Singapore dollar is the least attractive, the team concluded. The U.S. currency benefits because, as the world’s default funding currency, the rest of the world needs to buy back dollars when banks and companies deleverage during recessions, the JPMorgan strategists said. The greenback has already been outperforming in recent months as trade tensions escalated.

For the record, the team said talk of a recession at this point is “premature,” though concluded it “sensible” to review contingency plans amid the likelihood of a further escalation in trade tensions.

Emerging market currencies are a “clear stand-out” as particularly susceptible to slowdowns, depreciating on average by 17 percent over a two-year period straddling the start of a recession, JPMorgan said. The New Zealand dollar is “by far” the worst performer among the G10 currencies in a recession, losing an average 7 to 8 percent, the report said.

JPMorgan drew on research of currency performance over the last five recessions. While the yen historically had less impressive performance than the other three key hedges, this time around its real effective exchange rate -- a measure that adjusts for relative inflation and trade flows -- is 23 percent below its 40-year average. Ahead of the last three recessions, it was 8 percent overvalued, the bank calculated.

That means Japan’s currency should “form a central part of any recessionary hedge,” the strategists wrote. JPMorgan forecasts the yen to appreciate to 108 per dollar in September and 106 in December. It was at 110.51 as of 6:06 p.m. in Tokyo.

The bank separately said the dollar should extend recent gains against the euro after improved economic data from the 19-nation currency zone.

“This week we increase our overall long position in European FX through euro-dollar as European data surprises have now edged ahead of the U.S. and could support another 1 to 2 percent rally in the European bloc,” Meggyesi and his colleagues wrote.

(Adds yen forecast in third-to-last paragraph.)

To contact the reporter on this story: Gregor Stuart Hunter in Hong Kong at ghunter21@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cormac Mullen

©2018 Bloomberg L.P.

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