Tuesday, 20 January 2015

Is the currency play finally over?

Almost exactly 3 years ago I wrote a post arguing that there was an opportunity to invest in foreign index funds (as an Australian investor) because the exchange rate was far higher than it's historical averages and it seemed to me that this state of affairs wouldn't last forever.

My feeling was right and I have ridden the currency down almost 30% in the last ~5 years (this is before considering the returns that I managed to achieve by being invested in those foreign share markets).  I reassessed these investments 18 months ago and although I had already done very well out of them I felt like it still had further to go.

I'm still holding my foreign investments...but the currency is far closer to fair value

I'm still holding my foreign currency investments and they now account for just under half my share portfolio.  With the AUD / USD exchange rate sitting around the $0.82, I no longer have a strong conviction on the value of the currency.  It may be over-valued (I suspect that it might be a little bit strong) and it may be undervalued....I just don't know.

The currency play is finally over

I suspect that it may be time for me to realise some of the gains I have generated through these foreign currency investments that have served me so well.  The high Australian dollar no longer offers me the same buffer that it used.

International investments now need to be assessed on their individual merits alone with an added currency risk attached to it.  I have always believed in understanding why you are invested in a particular stock.  I'm not well placed to assess the performance of the US, UK or German stock markets (compared to the Australian stock market which I follow closely) so the time has probably come for me to sell.

Are you selling your foreign currency share holdings yet?  I'd love to hear what your views are.

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