June was one of the most interesting months for British politics and its implications on the financial markets. Being a Brit and having a lot of GBP based assets i've been following very closely.
With the markets having priced in a remain vote, the initial shock to the financial markets on 24 June was significant, and beyond anything i've seen in one day. These were the main immediate impacts to my finances:
With the value of GBP falling around 10% compared to USD (and HKD) the value of many of my assets fell but my HK based assets and income increased in value in GBP terms. I translate my portfolio to GBP as a base currency so this has generally appeared as a positive, although obviously the opposite is true if i were to consider my net worth in USD terms.
My equity investments initially fell sharply in value but have rallied strongly over the past week. In addition, a number of my uk listed and GBP denominated ETFs have underlying investments in non GBP currencies and have appreciated sharply.
My pension funds initially fell in value following the referendum result, but have rallied back to similar levels. The non GBP portion has gained in value due to the fx movements.
Overall, when viewing my portfolio in GBP, Brexit has had a positive initial impact, with most of this driven by fx movements. It remains to be seen what the longer term implications will be.
Specific considerations for myself going forward include whether i intend to be based in the UK in the future, whether GBP should continue to be the base currency of my portfolio, and if any changes are needed to the broad diversification of my assets in terms of asset class, geography and currency.
Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts
Friday, 1 July 2016
Saturday, 29 August 2015
Market volatility
After a fairly soft June & July in the markets, August has been pretty awful. Concerns have shifted from Greece to China and emerging markets in general, with significant falls in currencies (verses the us dollar) and equities.
Whilst it is pretty depressing to see my investment portfolio and pension funds fall in value, i'm trying to see the positive side of recent events. My investment strategy continues to be buy & hold well diversified ETFs with a focus on yield. I have no intention so sell anything and as such should not realise any actual losses. If anything, i'm viewing the falling markets as an opportunity to add to the portfolio whilst prices are low.
In recent months i've been adding to emerging markets and asian focused ETFs, which have been the hardest hit. Whilst it is tempting to keep on buying these at low prices, i'm instead focusing my attention at the moment more on the UK, US & Europe equities, which have also been dragged lower by the general concerns about China and the global economy, but in my opinion remain fairly healthy.
The main thing holding me back from some more significant additions to the investment portfolio is a lack of cashflow. After recently completing a property purchase my cash reserves are relatively low and much is tied up in longer tenor time deposits to boost yield. This is forcing me to take a slow and steady approach to investing, which is not a bad thing with such volatility and uncertainty in the markets.
Whilst it is pretty depressing to see my investment portfolio and pension funds fall in value, i'm trying to see the positive side of recent events. My investment strategy continues to be buy & hold well diversified ETFs with a focus on yield. I have no intention so sell anything and as such should not realise any actual losses. If anything, i'm viewing the falling markets as an opportunity to add to the portfolio whilst prices are low.
In recent months i've been adding to emerging markets and asian focused ETFs, which have been the hardest hit. Whilst it is tempting to keep on buying these at low prices, i'm instead focusing my attention at the moment more on the UK, US & Europe equities, which have also been dragged lower by the general concerns about China and the global economy, but in my opinion remain fairly healthy.
The main thing holding me back from some more significant additions to the investment portfolio is a lack of cashflow. After recently completing a property purchase my cash reserves are relatively low and much is tied up in longer tenor time deposits to boost yield. This is forcing me to take a slow and steady approach to investing, which is not a bad thing with such volatility and uncertainty in the markets.
Tuesday, 10 December 2013
Adverse fx movements, or are they..
Over the past 6 weeks or so i've noticed the unit value of a number of my ETFs declining, without seeing the same degree of falls in the underlying equities markets. This has been particularly apparent in asia pacific and emerging markets ETFs, which have dropped more materially.
However, a lot of the fall seems to be due to foreign exchange movements rather than underlying equities performance, with a double whammy of a number of currencies weakening against the USD, and GBP (many of my ETF investments are UK listed and GBP denominated) rising against USD. So for example, when i view the performance of my asia pacific property & high dividend ETFs in GBP, the value is down quite a lot recently.
This isn't a big concern for me for a few reasons:
- firstly i plan to hold long term so try not to focus too much on day to day price movements as long as the fundamentals remain solid
- although the investment values in GBP are falling, the value of the investments in their underlying currency are actually holding up well
- i am looking to reduce GBP exposure over time, so the fx movements will actually be favourable for investing in other currencies should i choose to sell GBP and buy USD, HKD or AUD for example.
The caveat to all this is the magnitude of the movements. Whilst i am comfortable with the size of the recent trend i would be concerned if this was the tip of a longer term and larger shift in the markets that could materially alter the overall value of my assets.
The other big unknown looking into 2014 is what impact QE tapering will have on global fx and equities markets and when we'll start to see this feeding through.
I'll pay closer attention to fx movements over the coming weeks and may look to re-balance if opportunities arise.
However, a lot of the fall seems to be due to foreign exchange movements rather than underlying equities performance, with a double whammy of a number of currencies weakening against the USD, and GBP (many of my ETF investments are UK listed and GBP denominated) rising against USD. So for example, when i view the performance of my asia pacific property & high dividend ETFs in GBP, the value is down quite a lot recently.
This isn't a big concern for me for a few reasons:
- firstly i plan to hold long term so try not to focus too much on day to day price movements as long as the fundamentals remain solid
- although the investment values in GBP are falling, the value of the investments in their underlying currency are actually holding up well
- i am looking to reduce GBP exposure over time, so the fx movements will actually be favourable for investing in other currencies should i choose to sell GBP and buy USD, HKD or AUD for example.
The caveat to all this is the magnitude of the movements. Whilst i am comfortable with the size of the recent trend i would be concerned if this was the tip of a longer term and larger shift in the markets that could materially alter the overall value of my assets.
The other big unknown looking into 2014 is what impact QE tapering will have on global fx and equities markets and when we'll start to see this feeding through.
I'll pay closer attention to fx movements over the coming weeks and may look to re-balance if opportunities arise.
Sunday, 13 October 2013
The HKD peg
I have a general interest in economics and financial markets, so every now & then i'll share my views on a few topics, starting with the Hong Kong Dollar currency peg.
Hong Kong has had a long history of pegging its currency. In the early 20th century it was pegged to Silver, following this it was pegged to GBP. After this, there was around a decade of free floating in the 1970s, and for the past 30 years it has been pegged to the USD.
In general i think the current peg has served HK well, bringing relative economic stability through a wide range of local & global events. Using USD as a peg also makes a lot of sense for an economy so focused on international trade, given the dominance of USD in trade settlement. I also think the HK Monetary Authority has done a good job in maintaining the peg, based on the USD backing of the currency and through passive intervention under the currency board mechanism. This strong monetary & economic management is vital in giving confidence to the financial markets & mitigating speculative pressures on the currency.
There are a couple of scenarios we have seen recently in HK that a pegged system does find challenging.
Firstly, when the economic cycles of the 2 economies are out of line, the prevailing monetary policy may not always be best suited to both parties. For example, the last few years have seen the US operate a policy of monetary easing, keeping interest rates low to stimulate growth. However, with the HK economy performing relatively better, the combination of low rates and growth have led to local inflationary pressures which become more difficult to manage without monetary flexibility.
Secondly, a currency board system would typically be self correcting, with a central bank selling the pegged currency as demand for that currency increases, in order to ease pressure on the peg. This should drive down local interest rates, reducing the original demand for the pegged currency and restoring a relative balance in value. However, when all interest rates are already close to zero, unless rates turn negative, it may not be possible to remove demand from the pegged currency in this way, resulting in excess liquidity.
I think we may have seen this in HK, which could to some extent be a contributing factor for the increases in real asset prices such as the local stock market and property, as this surplus liquidity is invested. It is unclear at this stage if, when and to what extent such valuations and fund flows may reverse, although the government's property cooling measures do seem to be slowing the market.
Whilst these consequences may at times be uncomfortable for the local economy, i generally believe the advantages of maintaining the status quo in HK would outweigh any challenges at this stage.
We'll have to see what the longer term future holds, which may to some extent be influenced by the internationalisation of RMB, and its impact on the local and wider economy.
Hong Kong has had a long history of pegging its currency. In the early 20th century it was pegged to Silver, following this it was pegged to GBP. After this, there was around a decade of free floating in the 1970s, and for the past 30 years it has been pegged to the USD.
In general i think the current peg has served HK well, bringing relative economic stability through a wide range of local & global events. Using USD as a peg also makes a lot of sense for an economy so focused on international trade, given the dominance of USD in trade settlement. I also think the HK Monetary Authority has done a good job in maintaining the peg, based on the USD backing of the currency and through passive intervention under the currency board mechanism. This strong monetary & economic management is vital in giving confidence to the financial markets & mitigating speculative pressures on the currency.
There are a couple of scenarios we have seen recently in HK that a pegged system does find challenging.
Firstly, when the economic cycles of the 2 economies are out of line, the prevailing monetary policy may not always be best suited to both parties. For example, the last few years have seen the US operate a policy of monetary easing, keeping interest rates low to stimulate growth. However, with the HK economy performing relatively better, the combination of low rates and growth have led to local inflationary pressures which become more difficult to manage without monetary flexibility.
Secondly, a currency board system would typically be self correcting, with a central bank selling the pegged currency as demand for that currency increases, in order to ease pressure on the peg. This should drive down local interest rates, reducing the original demand for the pegged currency and restoring a relative balance in value. However, when all interest rates are already close to zero, unless rates turn negative, it may not be possible to remove demand from the pegged currency in this way, resulting in excess liquidity.
I think we may have seen this in HK, which could to some extent be a contributing factor for the increases in real asset prices such as the local stock market and property, as this surplus liquidity is invested. It is unclear at this stage if, when and to what extent such valuations and fund flows may reverse, although the government's property cooling measures do seem to be slowing the market.
Whilst these consequences may at times be uncomfortable for the local economy, i generally believe the advantages of maintaining the status quo in HK would outweigh any challenges at this stage.
We'll have to see what the longer term future holds, which may to some extent be influenced by the internationalisation of RMB, and its impact on the local and wider economy.
Monday, 18 March 2013
Another bailout
Although i'd been expecting a Cyprus bailout for some time, i had been expecting it to pass by quietly, given the numbers are relatively small in comparison with the other bailouts in the region.
As it happens, I was quite surprised (as it appears were most financial markets) to see the proposed details, for the first time proposing a 'tax' on ordinary savings accounts.
I think the EU have grossly underestimated the reaction this would cause, not just in Cyprus but around the world. It brings in to question the validity of deposit guarantee schemes, and after a few quiet months it raises fears again about eurozone contagion and what this now means for other struggling countries and banking systems.
Whilst ordinary people would end up paying anyway (through higher taxes, lower state spending etc), the way this has been structured and presented makes it look particularly arbitrary and unjust. Given the size of the EU budget, i think they should invest a bit more in better PR and communications!
I'm sure this will run for a few days and expect some degree of back-tracking, but it does make me think more about the importance of risk management, tax planning and diversification in managing personal finances.
As it happens, I was quite surprised (as it appears were most financial markets) to see the proposed details, for the first time proposing a 'tax' on ordinary savings accounts.
I think the EU have grossly underestimated the reaction this would cause, not just in Cyprus but around the world. It brings in to question the validity of deposit guarantee schemes, and after a few quiet months it raises fears again about eurozone contagion and what this now means for other struggling countries and banking systems.
Whilst ordinary people would end up paying anyway (through higher taxes, lower state spending etc), the way this has been structured and presented makes it look particularly arbitrary and unjust. Given the size of the EU budget, i think they should invest a bit more in better PR and communications!
I'm sure this will run for a few days and expect some degree of back-tracking, but it does make me think more about the importance of risk management, tax planning and diversification in managing personal finances.
Wednesday, 23 January 2013
Sitting on the sidelines
Although i'm trying not to time the market, i'm currently suffering from a bit of inertia following the recent market rally. Things that looked cheap a couple of months back now look a bit more fairly valued, which has narrowed the range of investment options i find attractive.
Bond yields are falling, even those with more questionable credit quality. There is also a real risk of capital loss unless tenors are kept short (which reduces yields further).
Equity valuations are broadly at a level i'd consider to be par, or fair value. Certainly nothing is jumping out to me as being dramatically undervalued at a country / regional level.
Looking at the mix of my ETF portfolio, i have reasonable emerging markets, UK & European exposure, and to a lesser extent Hong Kong. Where i think i'm lacking is exposure to North America, small caps, and broader Asian markets (incl China). Industry wise, the high dividend nature of my portfolio tends to favour financials, utilities and property. I could probably do with some more consumer based names and possibly industrial or infrastructure.
I think i'll see how the next couple of weeks play out in terms of broader economic sentiment. If we are just taking a pause, its probably a good thing given the past couple of months and i'll just continue with my asset accumulation plans. If we see a pull back, its even better from a long term investment perspective.
Friday, 14 December 2012
Falling rates
One of the unfortunate side effects of the latest round of central bank interest rate & QE announcements seems to have been another round of savings rate cuts both for existing variable rate accounts & potential new fixed rate time deposits.
It is becoming quite a mission to hunt down an lock in decent interest rates. I'm not keen on long term fixed rate accounts beyond a year or two, and many variable rates have fallen quite sharply in the last two months or so.
In an attempt to build a respectable yield i've been flirting with the idea of moving more cash into corporate debt ETFs. Its really a case of weighing up the transaction cost and credit risk against the difference in yield, but i'm increasingly finding that my desire for yield is starting to overcome my natural risk aversion.
It is becoming quite a mission to hunt down an lock in decent interest rates. I'm not keen on long term fixed rate accounts beyond a year or two, and many variable rates have fallen quite sharply in the last two months or so.
In an attempt to build a respectable yield i've been flirting with the idea of moving more cash into corporate debt ETFs. Its really a case of weighing up the transaction cost and credit risk against the difference in yield, but i'm increasingly finding that my desire for yield is starting to overcome my natural risk aversion.
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