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INVESTMENT: The Global Currencies to Buy, Hold and Dump in 2015
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The Global Currencies to Buy, Hold and Dump in 2015

By Michael Dow

BT 201503 30 Investment InvestingForex investing is a tricky business. Regardless of whether your stock portfolio, your overseas property or your high yield bonds are performing well, if the currency that they were purchased takes a hit you could be in big trouble. Conversely, acquiring assets in the right currency at the right time can make you rich without any significant capital appreciation taking place. It doesn't matter whether you are a hedge fund manager or an avid saver who follows the boring but effective method of consistently buying global index funds; you simply can't afford to make bad judgements in this area of money management. That's why this month we are taking a look at which currencies you should be buying, holding and dumping in 2015.

Currencies to get your hands on right now

U.S. Dollar (USD)
Not too long ago, many credible and some not so credible financial commentators were predicting a catastrophic meltdown of the good old greenback. Over the last few months we've seen a complete opposite situation panning out, with investors flocking back to the dollar amidst all kinds of geopolitical tensions that are going on around the globe. Until the situation in Ukraine and the Middle East calm down the trend is likely to continue. And if analysts' predictions about a 2015 interest rate hike are correct then there should be even more support for the world's leading reserve currency.

Swiss Franc (CHF)
Swiss money has been regarded a safe haven for a long time. Amidst all the financial turmoil of the last few years, European investors in particular raced into the franc in a bid to escape the volatility of other global reserve units. Eventually the Swiss franc became so strong that the government stepped in and pegged it to the euro.

In January there was a sudden change of policy as the Swiss Central Bank seemingly decided enough was enough when the ECB announced a EUR 1 trillion quantitative easing (QE) programme. Further Eurozone tension makes further appreciation of the Swiss franc very likely.

BT 201503 31 Investment Japan stocks 1940x1439Indian Rupee (INR)
The Indian currency took a huge dive a couple of years ago. For a while traders were questioning whether the Indian growth story was on the verge of coming to a complete standstill. Since the country's new Prime Minister, Narendra Modi, got elected investor sentiment for Indian assets has improved significantly. The renewed optimism has been reflected in the forex markets, with the rupee making a pronounced comeback in recent weeks.

If the new Indian government's reforms are successful and the economy gets back on track then the rupee's rally should continue. If they can achieve this without lowering interest rates to fuel a credit boom and they also manage to keep inflation steady, which both remain to be seen, then the rupee looks like a much more interesting proposition than most other emerging market currencies.

Currencies to hold long term

Chinese Yuan (CNY)
The Chinese National Yuan was once seen as a one-way bet. Speculators believed that China's economic growth and the government's supposed desire to make the yuan a global reserve currency meant that the only way was up. In 2014 the People's Bank of China (PBOC) made surprised the financial markets when they stepped into to remind speculators that the CNY is not immune from volatility.

Although the move did spook a few value investors - some of whom were already moving towards a bearish stance on Chinese assets in general - the signs for long term appreciation are still there. Not only has the yuan recovered significantly from the correction it underwent last year, the Chinese authorities have taken some significant steps towards internationalisation of the currency. Even if GDP growth continues to slow down you can bet that institutional investors will buy up the so called 'redback' when it becomes fully tradable at some point in the next few years.

BT 201503 29 Investment hlSingapore Dollar (SGD)
In many ways the Singapore dollar is the Swiss Franc of Asian currencies. The city state is a productivity powerhouse that has a stable political system and is a major financial hub. This combination of factors, amongst other things, should make the currency a reasonably safe bet in what could be a very volatile second half of the decade. Now may well be the time to up your exposure to the Singapore dollar as your portfolio is sure to benefit from their presence.

Canadian Dollar (CAD)
Many think the Canadian dollar has had its best days. Since it surpassed the 1:1 valuation with the U.S. dollar it has steadily depreciated. Nevertheless the fundamentals for the Canadian economy over the long term still look good. The resource rich nation that has excellent trading relations with across the board and a generally well managed economy should continue to be a sound choice for asset hunters. Over time the broad consensus amongst analysts is an optimistic outlook for the Canadian dollar.

Currencies to avoid like the plague

BT 201503 32 Investment The Euro (EUR)
Anyone who considers investing in euros right now deserves a 'check up from the neck up', as the old saying goes. Those who thought the Eurozone's woes were behind them got a strong wake up call earlier in the year when the Greek people elected a party of anti-austerity communist populists to rule them. Could a complete collapse of the euro be just around the corner? Probably not, but it will most likely take a few big hits this year.

Japanese Yen (JPY)
Investing in the Japanese economy has been very risky business for decades, and it doesn't look like things will get better any time soon. Sure the equity market saw a 57% rally in 2013 and a 7% increase in 2014. The country's 'hedge fund housewives' will have undoubtedly been jumping for the entire year. Most Japanese forex traders on the other hand definitely won't have been overly ecstatic, given the situation.

The Japanese may still be a large population of hard workers and world class innovators but both their underlying macroeconomic problems and successive government's approaches to solving the stagnation conundrum make it a pretty unattractive investment destination. Even if they do find a way to rebalance their demographics and substantially reduce their crippling debt situation, while ever 'Abenomics' (i.e. A crusade to devalue the yen and create inflation by printing money) is the default response to economic problems investors should stay well away from the yen.

Pound Sterling (GBP)
The British currency, along with the nation's equity and real estate markets, had a good run until recently. While it is still one of the most important global reserve currencies and the UK economy is back on firmer ground, investors have seemingly favoured the dollar; which in part has been reflected by the recent reversal between the two.

Going forward, the pound could be in for a rocky road. It goes without saying that a further deterioration of the Eurozone economy would be bad news for the Brits. Then there is the upcoming general election in May, which raises the questions of who will be in power, whether they will have a parliamentary majority and whether a change of government could stifle the recovery. An interest rate hike may be the pound's only saving grace.


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