Investors should buy the pound against the Swedish krona to benefit from gains of as much as 7 percent as “extreme” selling of the British currency abates and Sweden’s economic slump deepens, Morgan Stanley said. The krona may slide to 12.5 per pound, Morgan Stanley said. Investors should exit the trade if the currency strengthens to 11 per pound. The krona fell 0.3 percent to 11.7312 per pound at 7:33 a.m. in Tokyo, heading for a fourth day of declines. “Sweden’s krona is closely tied to the global cycle, and in our view it has not fully absorbed the bad news from the global recession,” wrote Yilin Nie, a currency strategist at Morgan Stanley in New York, in a research note dated Jan. 29. “While we are fundamentally bearish on pound, we expect to see some mean- reversion from extreme GBP selling interest.” Sweden’s economy slipped into recession in the second quarter as the global financial crisis sapped demand for exports that make up about half of its economy. The economy could weaken further as the nation’s banks “face a difficult road ahead” due to their exposure to countries including Latvia, Lithuania and Estonia, wrote Ned Rumpeltin, a London-based currency strategist at Morgan Stanley in a separate note. The U.K. is further along in addressing its problems and “much of the problems there are domestic, where the government has more effective control,” he wrote.

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