Welcome to the first quarter of 2013 and the New Year. I’m sure you’ve all been inundated with the many multitudes of market commentators who have offered their review of last year and the 10 critical investment decisions for the year ahead or significant inflection points. The great thing about the investment management business is that everyone has a view!
One of the more interesting new year forecasts appeared in Bloomberg in mid-January when Russia warned of a fresh “currency war” as European policy makers joined Japan in bemoaning the cost of rising exchange rates. Alexei Ulyukayev the first deputy chairman of the Russian central bank stated at a conference “Japan is weakening the yen and others may follow”.
Luxembourg’s Prime Minister also complained of a “dangerously high euro” and officials in Norway had expressed exchange rate concerns. Miners and grape growers in South Africa feel the Rand should be significantly lower, farmers in Australia and New Zealand want a lower Aussie / Kiwi dollar and Emerging Markets have repeatedly complained about strong currencies as a result of easy monetary policies in the west, particularly Brazil.
A Greek tourist operator would also no doubt like a weaker currency. As Japanese exporters have become 20% more competitive than their Korean counterparts over recent months thanks to the Bank of Japan actions, no doubt the next few months will be interesting as to whose reneging on the 2009 G20 finance minister pledge to “refrain from competitive devaluations”.
It is a key skill and performance component of any multi asset portfolio manager to be able to manage currency exposure and navigate the “currency wars”. Whether that is hedging back into base currencies or attempting to add returns through active foreign exchange management, we at MitonOptimal will be watching global currency movements with a sharp eye.MitonOptimal Group Qtr 4 - 2012 Review (Offshore Edition)