Since the start of the global financial crisis in June 2007 in the USA, the contagion has spread around the world.
However, my theory and assertion that countries and companies that are cash rich will remain on top and provide profits at all times, stands confirmed since June 2007.
A currency is a leading indicator of how a country or its economic system is doing or going to behave in the future.
Some of the best currencies to have been invested into, since June 07 are:
JPY, 49% gain since June 07
CHF, 33%
AUD, 21%
SGD, 20%
BRL, 14%
SEK, 9%
CAD, 9%
NOK, 8% gain since June 07
EUR and DKK provided insignificant upsides.
The only currency / country which has a significant amount of Govt debt besides USA is Japan but has risen. This exception is due to the fact that in the period since 2000 to 2007 Japanese Yen was very weak and hence it appears that Yen has provided a 50% gain.
Aside from JPY, all other countries whose currencies have gained, as per the attached chart, since June 07 are very strong countries with strong cash reserves, robust exports and positive cash inflows or current account balances and no banking problems (except for Switzerland).
However, countries such as India and UK, have declined over the same period.
This indicates that USD may be weak but it is not weak against all currencies. All currencies have their own counterweight as well depending on their internal economic situation.
I have been a strong supporter to invest in AUD since last year and this currency has provided over 10 to 12% gains plus interest on bonds of 7% over the past 1 year.
AUD is the only big currency which provides good investment options. All others including CAD do not have many investment options outside of their own countries.
BRL has been a star performer amongst BRIC countries and for solid reason, they have lack of corruption when compared to other nations, are a democracy, have a young and thriving population and their region has not been afflicted with the global financial crisis or bank failures due to strong regulations.
Brazil will still continue to provide solid investment returns along with Mexico in 2011. Venezuela will remain weak due to lack of cash reserves and with a looming default by the Govt in 2012.
Indian Rupee declined 10% over the same period from June 07 till date. Despite the high interest rates of upto 10% on domestic deposits in India, INR remains unfavourable to hold since it has weak fundamentals. This is clearly shown in the chart where all currencies have risen versus USD except for INR and GBP. The loss in FX valuation is far greater than the high interest rate earnings. With high interest rates, comes high inflation which further erodes the value of holdings in INR.
During the same period, GBP declined an astonishing 18%!
All in all, investing in strong countries with strong cash reserves does provide long term benefits with high profits and historical data on a chart cannot lie!
JPY, 49% gain since June 07
CHF, 33%
AUD, 21%
SGD, 20%
BRL, 14%
SEK, 9%
CAD, 9%
NOK, 8% gain since June 07
EUR and DKK provided insignificant upsides.
The only currency / country which has a significant amount of Govt debt besides USA is Japan but has risen. This exception is due to the fact that in the period since 2000 to 2007 Japanese Yen was very weak and hence it appears that Yen has provided a 50% gain.
Aside from JPY, all other countries whose currencies have gained, as per the attached chart, since June 07 are very strong countries with strong cash reserves, robust exports and positive cash inflows or current account balances and no banking problems (except for Switzerland).
However, countries such as India and UK, have declined over the same period.
This indicates that USD may be weak but it is not weak against all currencies. All currencies have their own counterweight as well depending on their internal economic situation.
I have been a strong supporter to invest in AUD since last year and this currency has provided over 10 to 12% gains plus interest on bonds of 7% over the past 1 year.
AUD is the only big currency which provides good investment options. All others including CAD do not have many investment options outside of their own countries.
BRL has been a star performer amongst BRIC countries and for solid reason, they have lack of corruption when compared to other nations, are a democracy, have a young and thriving population and their region has not been afflicted with the global financial crisis or bank failures due to strong regulations.
Brazil will still continue to provide solid investment returns along with Mexico in 2011. Venezuela will remain weak due to lack of cash reserves and with a looming default by the Govt in 2012.
Indian Rupee declined 10% over the same period from June 07 till date. Despite the high interest rates of upto 10% on domestic deposits in India, INR remains unfavourable to hold since it has weak fundamentals. This is clearly shown in the chart where all currencies have risen versus USD except for INR and GBP. The loss in FX valuation is far greater than the high interest rate earnings. With high interest rates, comes high inflation which further erodes the value of holdings in INR.
During the same period, GBP declined an astonishing 18%!
All in all, investing in strong countries with strong cash reserves does provide long term benefits with high profits and historical data on a chart cannot lie!
If you think about it, investing in a currencies at the right time in line with a long term trend, can be more beneficial than maintaining funds in a specific "known" or "home" currency.
It is certainly not easy to predict how currencies will perform over the short term but long term trends certainly favour countries with positive inward cash flows, strong cash reserves and strong regulatory framework.
The Chinese Yuan has not been evaluated here although it meets a lot of criteria except that the currency is pegged to an unknown basket of currencies. In addition, it has been controlled at a strong level by the Govt. of China at approx 6.6 to 6.7 Renmibi to the USD for the last year and has been allowed to appreciate at a measured pace, despite all the pressure from USA and allegations that Chinese currency is undervalued and it helps China to keep its exports at a very competitive price. But that has been the case for the past 10 or 20 years so it does not matter now and secondly, every country has a right to keep its currency at a level beneficial to itself (and the Chinese can certainly do so, since they have USD 3 trillion in reserves to back their intentions with).
Once the time comes to invest or hold in Chinese Yuan, you must be prepared to jump at it.
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