Currency wars: Why now is the time for investors to evaluate their portfolio
The first month of 2013 has been characterised by its ongoing, and increasing, currency volatility – and this turmoil is likely to ramp up throughout the year and develop into a currency war as more and more countries are likely to adopt a ‘beggar thy neighbour’ policy and move, openly or not, to devalue their currencies in a bid to strengthen their own exports.
So, what do I base my evidence of a forthcoming currency war on?
There are many indicators, but to highlight just two: Firstly, the new Japanese Prime Minister, Shinzo Abe, effectively committing to a policy of devaluing the yen, will be of significant concern for the likes of the US, China and India, amongst many others, as it will give Japanese exporters an enormous trade advantage, and it may prompt these other financial powerhouses to seek their own devaluations.
And secondly, in Europe,Britain’s dismal growth figures have damaged the pound’s ‘safe haven’ status and prompted investors to buy euros, slashing the value of sterling.
In response to the tumbling of the pound and the rising likelihood of a global currency war, it’s of paramount importance that investors evaluate their portfolios sooner rather than later to ensure that they will be positively, rather than negatively, impacted by events. They need to be prepared and primed for the fallout. Early this month we said the pound would fall and we’ve been proven to be correct.
With volatility set to dominate the non-stop foreign exchange market, the largest and most liquid financial market in the world, now is the time to review investments.
Perhaps, now more than ever, portfolios must be balanced – now is not the time to put all your investment eggs in the basket of one country or asset.
Nigel Green deVere Group
Blog written 31st January