Freddy Barker asks Dan Briggs, CIO of Fleming Family & Partners, if HNWs should expect currency fluctuations to affect their portfolios
Sterling has devalued 5-10 per cent in 2013 following fears of a triple-dip recession and the AAA-rating downgrade in the UK. So, assuming it continues to devalue as part of George Osborne’s plans to boost growth by making exports more competitive, it’s fair to question whether currency fluctuations will be the main determinant of portfolio returns over the next 12 months, as was the case in 2008.
‘I think it is less likely than in 2008,’ says Dan Briggs, CIO at Fleming Family & Partners, ‘partly because, for all the volatility, currencies are more efficient now relative to purchasing power, interest rates and growth.
‘Furthermore,’ he continues, ‘the greater scrutiny by governments and central bankers will result in more pressure to avoid large moves. For example, the yen’s 20 per cent depreciation since the autumn has provoked considerable objection and resistance both in Asia and Europe.’
Briggs’ outlook will be a relief to HNWs given they have historically overlooked currency hedging because of the extra dimension of complexity and risk it adds. This has, of course, proved folly for those with large liabilities in particular currencies as large fluctuations can undo successful security selection elsewhere.
In future, Fleming Family & Partners believe that debt and deficit fundamentals are less likely to impact sterling than growth, inflation and rates. So they recommend HNWs keep an eye on relative growth levels as well signals of QE withdrawal and tighter monetary policy.
‘Though sterling looks technically vulnerable,’ summarises Briggs, ‘we believe that the main downward move has happened, at least until the Budget.’
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