Yoohoo! Time to hit those online malls, or book that long due overseas trip. Yes, the little Aussie battler is enjoying its time in the sun. In the US, our fistful of dollars can buy a lot more juicy retail items than it could last month, year or 10 years ago. Fantastic! A decade ago our dollar bought US52 cents while now it’s on the cusp of buying one whole greenback. Last Friday night it actually surpassed US$1.00 for around 17 seconds!
Along with being able to buy our favourite global brands more cheaply, comes the chance to buy US and global companies at far better value than previously. The past decade has not been a great time to be invested offshore as any positive returns were consumed by the strengthening currency, and most Australian funds invested in international stocks went backwards.
Australian shares represent about 2% of the global market so it makes a lot of sense to be exposed to offshore securities and nowadays you can do this relatively easily by buying units in Australian funds that specialise in overseas stocks. But before we rush off in pursuit of cheap US companies, we need to understand the impact of currency risk.
When we buy overseas stocks, in addition to the usual market risk we take when investing in shares, we also take on currency risk. This is essentially the risk we take as an investor that the currency will move in a way that reduces our return from our investments, despite their underlying performance being satisfactory. Obviously the converse applies too – the currency can move in such a way that it enhances your returns – and that is what many would be investors will be banking on as they start an offshore foray. Cheaper shares, and more for your dollar – a great combination!
As we know no-one can see into the future, even the gurus - our dollar may well still show upward movement. But chances are it will peak or plateau in the short-term, which means the timing may be perfect. Talk to your adviser before you take the plunge to fully understand the risks attached, or the hang-over may linger well past the celebration!
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