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2018 has been characterised by a number of political and economic risks which have impacted capital markets negatively. From the threat of trade wars, to divided European governments, to shifting economic policy by central banks; these are just a few of the hTo hedge or not to hedge?
2018 has been characterised by a number of political and economic risks which have impacted capital markets negatively. From the threat of trade wars, to divided European governments, to shifting economic policy by central banks; these are just a few of the headwinds that investors have been faced with, and the market has acted accordingly. As is typical during turbulent periods, the dollar has rallied considerably against all major and especially emerging market currencies. Currency exposure is an element in an investor’s portfolio that is often overlooked at his/her own peril. When investing in an asset which is not denominated in your domestic currency (in our case the Euro), the position is affected by both the capital fluctuations in the asset as well as the currency in which it is denominated, or asset return plus currency return. In fact, assets that are based in emerging market currencies typically would command a greater level of expected return than assets in developed countries, due to its’ risk and interest rates expectations. Taking a practical example, when a European investor is taking a position in an equity instrument that tracks the performance of the S&P 500... Read more