Currency risk in investing

bigadaj

Quick question, what is people's view on currency risks, or rewards. I've avoided european investments for a few years primarily because of the over inflated euro rather than problems with the bank debt, sovereign debt etc. The search for Higher returns would suggest investments in emerging markets, with similar currency risks, even if they are pegged or try to against the dollar.

Also whilst you can see what your investments and funds do in sterling terms, I get the impression that media reports on Market performance may or may not use hard currency denomination as a comparator, and thus whilst the Congolese or Somali stock Market could go up a million per cent then the currency may devalue by more.

jin1234i

If your money is invested in stock markets outside the UK then you will face currency risk.The easiest way to remove currency risk from overseas investments is to invest through a fully or partially hedged managed fund.

grey_gym_sock

yes, media reports are usually based on the local currency, because they will tell you the change in a stock market index for country, which will be in the country's own currency.

i would not hedge currency risk when investing in foreign stock markets. the way i look at it is that i'm buying 0.0000000001% (or whatever) of the listed companies in a country (or region), and what matters is the real value of those businesses. this is affected by both the local value of the stock market and the real value of the local currency, but sometimes they move in opposite directions, so i don't find the overall effect much more scary than investing in the UK market. if i hedged my local currency exposure against sterling, then i'm exposed to the changes in the real value of sterling, which seems silly when part of the idea was to invest in something unrelated to the UK.

however, investing in foreign markets may be more volatile in the shorter term because of exchange rate moves, so perhaps one should be investing for the (even) longer term in them.

bigadaj

Thanks for responses, wasn't raising as a major problem, just seems an issue that is ignored in many assessments.

ruperts

So when i'm looking at historical performance for something like the Aberdeen Emerging Markets fund, do the figures include fluctuations caused by exchange rates?

CLAPTON

most of the ft100 companies are multinational and so even investing in 'UK' involves currency risks

Masomnia

CLAPTON wrote: »

most of the ft100 companies are multinational and so even investing in 'UK' involves currency risks

Just about the point that out, aren't something like 70% of the FTSE100's earnings from abroad?

Even if you buy shares in a UK company that exports/imports you're exposed to some currency risk.

srcandas

Masomnia wrote: »

Just about the point that out, aren't something like 70% of the FTSE100's earnings from abroad?

Even if you buy shares in a UK company that exports/imports you're exposed to some currency risk.

Yes but you cannot overplay this. Many of these companies trade in dozens of currencies and also take precautions to protect against major fluctuations. I'd have thought that if anything global operations must be as near as you can get to currency neutral.

Just a thought: Perhaps a bigger concern in emerging markets might be what Argentina did to Repsol

grey_gym_sock

ruperts wrote: »

So when i'm looking at historical performance for something like the Aberdeen Emerging Markets fund, do the figures include fluctuations caused by exchange rates?

if the fund is priced in sterling, the performance figures will be based on sterling, so exchange rate fluctuations are included.