By Jeremy Gaunt, European Investment Correspondent
LONDON (Reuters) - The search is on for new investment "safe havens" following Switzerland's blocking off of its franc, diverting flows into less traditional assets that may already be too expensive.
The Norwegian crown, the Australian dollar and emerging market debt are all in the frame for increased investor attention as one of their favorites has at least temporarily been blocked off.
This is in addition to the traditional harbors such as gold and U.S. Treasuries -- which are at or near record prices.
The Swiss National Bank shocked markets this week by setting a target for the franc against the euro that it would defend, drawing a line on how much it would allow the currency to appreciate and losing investors nearly 9 percent in one fell swoop.
It underlined the precept that there really is no such thing as a safe haven in investing outside cash, given that heavy flows drive up prices and set assets up for a correction, prompted by authorities or not.
But like water in a disrupted river, the Swiss move -- and lesser attempts by the Bank of Japan to defend the yen for similar reasons -- means money will flow elsewhere.
Lena Komileva, global head of G10 strategy at Brown Brothers Harriman, reckons it will exacerbate a search for non-traditional havens.
Among these are the Norwegian crown and Australian dollar both of which have been popular for some time because of preferable interest rates but which also now have some claim to safe haven status because they have maintained a distance from some of the crises hitting the rest of the world.
"They provide a viable hedge to the cyclical and strategic risk that the markets will be pricing," Komileva said.
It is already happening. Since the Swiss move on Tuesday, the euro has tumbled as much as 3 percent to an eight-year low against the Norwegian crown, although it has recovered a bit.
The Australian dollar, meanwhile, is attractive because Chinese and other Asian demand for the country's commodities has kept its economy relatively buoyant.
But both have their risks.
Norway protects itself from currency appreciation in part by overseas investment, but its central bank governor has already warned investors that it could take steps to make the currency less attractive if it rises too high.
"We don't have a zero rate, which means we have the freedom to move both ways," he told Reuters. "Should the pressure become too big one way or the other, the interest rate is our weapon."
The limited liquidity of the crown also threatens large losses for investors trying to exit should the investment mood suddenly turn.
The Australian dollar suffers from the same problem that traditional safe havens do -- it is already expensive.
On a trade-weighted basis -- that is, essentially, against a basket of currencies -- the Aussie has risen 11.5 percent since the beginning of 2011.
Financial services firm State Street calculates that out of 22 global currencies, the Australian dollar is the fifth most expensive.
That suggests investors buying now won't be getting much benefit and may get hurt by a sudden reversal.
Perhaps the most unlikely new safe haven -- given history -- is emerging market debt.
Far from being seen as risky and vulnerable, local currency paper in countries whose economies were once highly suspect are now seen in many cases as paragons of fiscal virtue, primarily because of their surpluses.
Many of their currencies are also seen rising against those in the moribund West, with its low growth and low interest rates.
"EM local bonds are still the darling of international investors," said Gyula Toth, an analyst at Unicredit, noting the jump in Hungarian paper that followed the Swiss move.
Again, however, the problem for investors heading that way is that it is a crowded trade,
JPMorgan's local-currency bond index has risen almost solidly since 2007, gaining around 55 percent over the period. It is up more than 8.5 percent since a low in February.
There is also the issue of which emerging markets might be the safest.
Thanos Papasavvas, head of currency management at Investec Asset Management, says diversity is essential if EM is to be considered a safety play.
He favors a mix of Chile, Mexico, Philippines, South Korea and India.
It is indeed a new world for safe havens
(Additional reporting by Naomi Tajitsu, Nia Williams and Carolyn Cohn. Graphics by Scott Barber. Editing by Janet McBride)