Volatility is greatest at turning points, diminishing as a new trend becomes established (George Soros)
May is now over and summer in the Northern Hemisphere is well on its way. So looking back at the merry month of may, was it merry for you....
Dow J +0.3% +6.3%
Nasdaq +2.5% +15.2%
FTSE +04.3% +5.3%
Dax +1.4% +9.9%
Nikkei +2.9% +3.9%
SSE -1.6% +0.0%
And on the currencies, the USD got a little back against GBP & AUD but remained down for the year overall
GBP +0.6% -4.3%
EUR -3.2% -6.8%
JPY -0.7% -5.6%
CNY -1.1% -1.8%
AUD +0.8% -3.1%
We are nearly one year on from the shock of the Brexit vote. From a market perspective and especially us who have most of our assets in sterling, the biggest impact was the loss our currency’s value. That said the positive was a FTSE rally due to the foreign income streams bolstering these companies’ balance sheets.
So whilst our holiday in Spain may have cost a few more quid, our portfolios will have reaped the rewards
The UK election is just around the corner and while we have a strong favourite in Theresa May, the polls are suggesting that Labour may do considerably better than initially thought. If that is the case we can expect to see the pound lose a little more value.
A fund manager I was speaking to recently suggested that two years from now, sterling will be back at around its true value, in his opinion $1.50, but before that he thinks we could see a dip as low as $1.10. This illustrates the volatility of the currency markets and why you must hedge yourself. Regular readers know that I do not play the prediction game, it is a futile exercise, nor do I speculate on political outcomes. One of the reasons I shy away from oil is that politics and unknowns can cause fluctuations to its price I. Yes stock markets are volatile but wars in the Middle East, a US President being impeached and the rise of a left wing Britain do not stop people buying Iphones, (Apple – core stock) Dove Shampoo (Unilver – core stock) or enjoying a pint of Guinness (Diageo – core stock)
However there is no way to hide from the volatile market that is currency. The simple solution is to have exposure in all the major currencies. Buying global players who derive income from all over the world such as the company’s mentioned above lessens your currency risk. I have had my fears over the Euro, and whilst in the longer term I still fear for the currency as it is so politically exposed by definition, the ship does appear to have steadied with far right anti union leaders such as Marine Le Pen and Gert Wilders not gaining the power that was a possibility. Germany despite the Syrian refuges crisis as reported last month is experiencing some of its lowest unemployment rates for many years and all seems quiet on Italian Banks and Greek debt….I recommended all my Euro clients to sell some prior to the French election, why risk the potential losses a la Sterling and Brexit which can be so damaging. Ok it didn’t happen, perhaps the Euro is a buy for some Sterling right now.
If your portfolios have this global approach you are doing what you can to deal with the volatile issue that currencies create. The threat of currency losses can be balanced by the opportunity in markets, as mentioned above. It’s a tough game to get it right, as I will say over and over again no one person in this i word has a crytsal ball which can see the future, so we use what we know to our advantage. An example of this would be that now I am more confident on the Euro, I am less bullish on luxury goods, a market often driven by the Chinese / Asian consumer who may now have to pay more for their Louis Vuitton handbag or Cartier watch if indeed the Euro does strengthen
The last year has certainly shown us more that ever that we must expect the unexpected, it’s a tricky balance between that and expecting the expected, moderate governments in France, Chelsea as Premiership champions etc….so let us help …….