Multi Currency Strategy


A multi currency strategy is important now because extensive research on seasonality shows that basically in all major equity markets, nearly all returns are achieved from the beginning of November through the end of May. This means we are approaching the best time when equities will rise.

However a year ago, a global financial crisis began. So before we jump headlong into more security investments we need to ask, “What happens now?”

This week we will look at the strategic multi currency economic outlook developed by Jyske Bank’s strategy and research team.

The most important part of investing is to create a realistic match of your portfolio to your own wants, needs and desires.

Next, you need to invest in good value.

An overview of global economics is vital to help you spot good value.

I review my personal portfolio and how I have responded to the crisis of the last year and what I am planning ahead for subscribers of our Multi Currency Course.

Jyske’s report begins:

“It has now been a year since the international financial crisis really took off. The Fed as well as the European Central Bank have had to render assistance in the form of additional liquidity, and there is still a shortage of liquidity today – a year later.

At this point in time – a year after the onset of the crisis – the economic slowdown and the high commodity prices (particularly the oil price) have added to the financial crisis and the global economy is still facing big challenges.

What about the current situation? Well, it can be said that fear of low growth has now replaced the fear of high inflation. This development has taken place after the oil price fell by more than 20% from the peak in mid-July while at the same time we are being inundated with poor economic data for Europe, the UK, Japan, while the emerging markets are also seeing a somewhat weakening development.

What are the forces behind the global economic slowdown in addition to the weak US economy?

Global shocks = Global effects

Drastically rising food and energy prices have put a damper on the consumers’ purchasing power globally and reduced growth by 50% relative to the level in 2007. At the same time, the companies’ earnings are under pressure due to rising commodity prices and wages.

The reaction on the part of the authorities:

Despite the housing-market crisis, financial crisis, oil crisis at full blast in the US, it seems that the US economy saw stronger growth in H1 than the Japanese as well as European counterparts. An important reason for that is that the US authorities did all they could to avoid a slowdown in growth. The Central Bank lowered its interest rate markedly to 2%, and tax relief in the amount of USD 100bn were granted. Europe has seen an interest-rate hike and no easing on the part of the authorities.

Prepared for the worst:

A new development was that already at the beginning of 2008, the US companies seemed to have begun reducing inventories and cutting labour costs in preparation of the bad times ahead. Apparently they were better prepared than the companies in Europe and Asia, which will have to make deeper cuts in production to adapt to the new weaker demand.

Investment Conclusion:

A general theme for investors is positioning for continued weakening of growth outside the US. Therefore, among other things, we now see a markedly stronger dollar as the trend has been reversed. That we prefer US equities to European ones and that European bond yields will fall towards the US level.

On the whole we keep the risk unchanged in the portfolio by maintaining neutral weight for equities. Our considerations with respect to the future are that we will rather prefer to increase the proportion of equities than to reduce it.

This autumn, equities may be boosted by the lower inflation level. Moreover, the many global investors have reduced their holdings considerably. They may gain some appetite for equities when they see the favourable effect from the lower oil prices.

However, the challenges for the equity market is that slow growth will spread from the US to the rest of the world and put pressure on the companies’ earnings and, moreover, the financial crisis is still not over.

Tomorrow’s message by looking at each analysis by Jyske of each currency zone.

Until then, good global investing!

Gary

Join me and with Thomas Fischer from Jyske Bank at our upcoming international investing course in North Carolina. International Investing and Business Made EZ North Carolina October 3-5


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