Switzerland - Land of Safe Money!
As I was revisiting longer term charts in an effort to find answers to current shortcomings, a few things stand out that somehow do not receive a lot of attention, although they SHOULD. I am always astounded how little merit is given to the relativity of pricing, - the measure by which you denominate the value of an index. What I mean is that we monitor asset valuations in the currency they are traded in and often do not take account of variances in the currency against foreign currencies - of foreign investors.
This is a chart, which should scare its investors to 'death'. Here, we see the Swiss index rise from March 2009 to its highest point in May 2010. That was a real rise, meaning that valuations were supported by the Swiss Franc, which remained stable during that period. Thereafter, the Swiss index has been stepping lower every so often, before the final rout over the last two weeks, which resulted in falls to within just 400 points of the lows reached at the lowest point of the crisis in March 2009. - And yet, the CHF strengthened to an all time high just a few weeks ago, - by near enough 50%.
Looking Through The Wrong Glasses
The way we look at markets is often coloured by the currency we use most frequently. Whether or not this chart suitably frightens an investor depends in which 'currency spectacles' he wears:
If he invests with Swiss Francs, he will probably be ready to throw the towel now, because the index has dropped to within 10% of March 2009 levels. If however, he is a USD investor his account statement will look - seemingly - rather more comforting:
That's how easy it is to fool yourself when you do not take account of your own currency strength or - in the case of USD - weakness. For SGD investors, the profits are considerably less, as the currency gain for CHF-SGD is about 18%, most of which was added since April this year!
Currencies of the Future
The reason I am going on about this is to highlight the changes that are afoot in the currency markets. Sooner or later (and ideally we hope for a gradual process), the priority given to the USD for international trading will diminish and a few strong currencies, i.e. those that investors flock to when they look for safety, those that are reasonably transparent and liquid, will come to the fore.
I think this is happening already: I would like to single out the YEN and the SGD in particular. The fortunes of the CHF depend on how the "Eurocentrics" will sort out their EURO debt and other currency issues. This must affect our investment strategy going forward, as it has been already affecting many decisions for SGD investors. Key word: risk - reward. However, don't expect the current status quo to change immediately. It will be a few years before a new status quo has evolved. Before that much of the ongoing volatility in currencies is likely to continue.
 |
| Swiss Market - Swiss Franc in disassociation |
Looking Through The Wrong Glasses
The way we look at markets is often coloured by the currency we use most frequently. Whether or not this chart suitably frightens an investor depends in which 'currency spectacles' he wears:
If he invests with Swiss Francs, he will probably be ready to throw the towel now, because the index has dropped to within 10% of March 2009 levels. If however, he is a USD investor his account statement will look - seemingly - rather more comforting:
In March 2009, CHF-USD was 0.855, the Swiss index was at 4284 = 0% starting point.
In August 2009, CHF-USD is 1.386, the Swiss index stands at 4684. This means that since March 09 till now, only 400 points are left as profits for the CHF investor. However, the USD investor would still see a gain of some 2800 points (recalculating the same index in USD), still a reasonable profit from his point of view.
 |
| CHF versus SGD since March 2009 |
Currencies of the Future
The reason I am going on about this is to highlight the changes that are afoot in the currency markets. Sooner or later (and ideally we hope for a gradual process), the priority given to the USD for international trading will diminish and a few strong currencies, i.e. those that investors flock to when they look for safety, those that are reasonably transparent and liquid, will come to the fore.
I think this is happening already: I would like to single out the YEN and the SGD in particular. The fortunes of the CHF depend on how the "Eurocentrics" will sort out their EURO debt and other currency issues. This must affect our investment strategy going forward, as it has been already affecting many decisions for SGD investors. Key word: risk - reward. However, don't expect the current status quo to change immediately. It will be a few years before a new status quo has evolved. Before that much of the ongoing volatility in currencies is likely to continue.
Comments