OASES in international financial markets: the dividends of neutrality

Throughout the past several years, geopolitical risks were on the rise, with the US–China trade dispute significantly impacting financial markets during the Trump administration and geopolitical risks reaching record-high levels. The prominence of neutral economies such as OASES (Oriental Republic of Uruguay, Austria, Switzerland, Emirates (UAE) and Singapore) in peace mediation, their neutrality in international relations may harbor important dividends for their economic development and financial market dynamics in terms of lower geopolitical risks and risk premia for sovereign and corporate assets in international markets. OASES economies may thus provide portfolio investors with a range of low-risk and low-volatility assets with safe haven characteristics.

Existing empirical research points to the benefits associated with the safe haven status of assets in terms of market performance and the dynamics of macroeconomic indicators. In exploring the relative returns of different portfolios during 5 periods of elevated geopolitical risks, the economists from Schroders concluded that “the portfolio of safe haven assets delivers higher risk-adjusted returns than the risky portfolio in four out of the five periods considered, based on the Sharpe ratio” (Wade and Lauro, 2019, p. 10). There are also palpable macroeconomic effects of higher geopolitical risk, with analysis performed empirically by Caldera and Iacoviello (2002, p. 1194) suggesting that sizeable increases in the level of geopolitical risk result in lower economic activity and adverse implications for employment and investment. The scale of these benefits associated with the safe haven status of assets may vary depending on the market segment, with the focus of this section being directed at the FX, equity and fixed income market segments.

In the FX world, one of the most preferred assets used to mitigate geopolitical risks is the Swiss franc. According to Goldman Sachs analyst Michael Cahill, gold and the Swiss franc rise more than the yen does during periods of military conflict and accelerating inflation: “Switzerland’s neutrality and long-standing reputation for safety, security, and caution could easily be compared to the precious metal” (Everett, 2020, para.  6). The good side of the safe haven features of the Swiss franc is its strength that is supportive for consumption; on the negative side is the pressure on the Swiss franc due to higher “safe haven inflows” that may undermine competitiveness and stoke inflation. In mid-2024 the Swiss National Bank resorted to several consecutive interest rate cuts likely attempting to stem franc’s appreciation amid “heightened European political uncertainty” (Steffen et al, 2024, p. 2).

The Swiss franc was among the outperformers among the OASES currencies in the 2017–2022 period, while the Uruguayan peso was the weakest of the OASES currencies in that period. Overall, an OASES FX portfolio, if weighted by OASES GDP size would mostly present a CHF-Euro-USD mix (given that the UAE is pegged to the US dollar, while Singapore manages its exchange rate vis-a-vis a basket of currencies of key trading partners (including the US)) that is broadly representative of the FX patterns across developed markets, albeit with a greater role accorded to the Swiss franc. Given the concerns regarding the growing debt burden in the US and the structural issues faced by Eurozone economies, investors are likely to intensify their quest for safer assets across both EM and DM, with OASES/OASES+ markets potentially offering investment strategies with safe haven features.

With respect to bond markets and sovereign credit, OASES economies exhibit relatively high sovereign credit ratings compared to their regional peers. In Latin America, Uruguay has the second highest S&P sovereign credit rating of BBB+, coming only after Chile that is the only major economy in the region with a sovereign rating in the A category. In Europe, Switzerland’s AAA sovereign rating and Austria’s AA+ rating compare favorably with most of their regional peers. In Asia Singapore has the highest sovereign credit rating of AAA, while in the Middle East the Abu Dhabi from UAE has one of the highest sovereign credit ratings of AA (see Table 1). All OASES economies have their sovereign credit ratings in the “investment grade” category, which is not the case for the majority of BRICS-5 economies.

Table 1

Sovereign Credit Ratings by S&P in OASES and BRICS Economies, as of July 31, 2024

Note. Adapted from S&P Global (2024); https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/sourceId/13212613.

In an equity investment portfolio, a platform for small open economies that are neutral and successful in terms of economic development OASES may be expected to deliver the benefits of lower asset price volatility (lower geopolitical risks) as well as higher returns (quality of governance and economic policy). This, however, is not fully borne out by empirical data for OASES stock markets for 2015–2024 (Bloomberg data from end-December 2014 to end-December 2024): the annual return in Austria and Switzerland was higher than for the broader regional stock index of Euro Stoxx 50, while Singapore’s stock market growth underperformed the stock market performance in the larger Asian economies such as Japan and the broader S&P Asia 50 regional index. Similarly, the stock market return for 2015–2024 in the UAE was marginally lower than in Saudi Arabia, its large regional neighbor.

In terms of volatility the picture was also mixed: Singapore and Switzerland exhibited notably lower volatility compared to their regional peers in Asia and Europe, while UAE and Austria demonstrated somewhat higher volatility than in Saudi Arabia and in Europe respectively. The highest volatility across the OASES regions is observed in Latin America (see Table 2).

Table 2

Stock Indexes across OASES and their Regional Peers, 2015–2024

Note. Adapted from Bloomberg (2025)

One of the factors at play in the underperformance of OASES markets during the preceding decade may be the Covid crisis that affected small open economies more negatively due to their openness and susceptibility to global economic downturns. Nearly all OASES stock market indexes underperformed the S&P500 index between January 2017 and January 2022, with the UAE equities coming closest to matching US equity performance. As the adverse effects of the Covid downturn become more distant in time, it may be expected that the fundamental macro strengths of OASES economies will be reflected more in their financial market performance. In fact, in 2024 Singapore’s stock market was the best performing market across Southeast Asia—towards the end of 2024 the Straits Times Index (STI) was nearly 15% up since the start of the year and reaching its 17-year high in December 2024 (Lim, 2024). There may be also a need to explore the relative performance of OASES markets versus their regional peers over longer time periods, over which macro factors such as geopolitical risks and the quality of economic policies may have more of an effect.  

More generally, there may be limitations in attempting to advance OASES financial instruments such as OASES ETFs or asset management funds with a mandate of investing into OASES markets (in line with similar funds that invested into BRICS economies such as the Goldman Sachs BRICs equity Portfolio). In particular, more time is needed for some of the markets such as Uruguay to mature and gain in market depth and stock market capitalization. There may also be considerable time requirements in order for OASES to establish itself as a group that delivers safe haven features during downturns in global markets.

A key advantage that OASES economies wield in raising their role in international financial markets and cross-border portfolio capital flows is their leadership in the wealth management industry. According to Deloitte, Switzerland leads the world in terms of the size of wealth under management (IMV value), with USD 2.2 trillion in assets accounting for 21.4% of the market share in 2023 (Deloitte, 2024, p. 7). In terms of the competitiveness ranking of the main wealth management centers Switzerland takes the #1 spot globally in the 2024 ranking (as well as in 2013 and 2018), with Singapore taking the #2 position globally (#1 in Asia). United Arab Emirates takes the #5 position globally (#1 in the Middle East) (Deloitte, 2024, p. 10). Austria also featured among the most advanced wealth management centers in the Deloitte ranking throughout recent years, while Uruguay has taken active steps to develop into a wealth management hub in Latin America.

Another crucial role that OASES play in the global economy and financial markets is that of forex reserve repositories. The size of Switzerland’s international reserves in 2023 was greater than in India or Russia, while Singapore’s reserves are greater than in Brazil (see Table 3). Taken together OASES economies account for 11.5% of global international reserves, which compares with a 0.5% share of this group of countries in global population (Lissovolik 2022). The role of OASES economies in the global financial system is further reinforced by the fact that they host regional financing arrangements (RFAs) and other financial institutions that promote regional and global economic stability: Singapore is the headquarters of AMRO, a supporting institution of the CMIM; Basel in Switzerland is the headquarters of the Bank for International Settlements (BIS); Abu Dhabi is the headquarters for the Arab Monetary Fund (AMF), Uruguay is a member of the FLAR regional financing arrangement in Latin America, with Montevideo serving as the headquarters of FOCEM, Mercosur and ALADI; Austria is the headquarters of the Joint Vienna Institute (a joint institution with the IMF) and is a member of the EU’s European Stability Mechanism (ESM). 

Table 3

International Reserves in OASES and BRICS, in billions of US Current Dollars, 2023

Note. Adapted from IMF (2025).

Overall, more research is called for in the sphere of examining the link between geopolitical risk and returns on assets of neutral economies such as OASES. There could also be scope to explore a greater integration of OASES financial market instruments into investment fund strategies, particularly in the bond and credit segments, in view of OASES relatively high sovereign credit ratings. There could also be a case for creating OASES indexes that may serve as low-volatility/low geopolitical risk benchmarks in line with similar indexes and sub-indexes such as the MSCI World Minimum Volatility Index.

Yaroslav Lissovolik, Founder, BRICS+ Analytics

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