The global investment environment gives an investor /trader (large or small) an equal playing field to capitalize in bull or bear markets. The investments on offer range from equities, bonds, currencies and commodities just to name a few and investors profit from rise and falls. These investments come with an equal proportion of risk to rewards and not understanding one’s own psychological risk can lead to large losses.
* An investor who wants to bet on the downside of the US stock market may wish to sell The S&P 500 Index short or buy a Put option (a Put option is a leveraged product which will increase in value on the downside fall of a stock market).
* A bullish view on the Indonesian economy can be made into a trade idea by purchasing an Exchange Traded Fund (IDX) which reproduces the returns of the Indonesian stock market.
The examples highlighted are to show the flexibility and ease of investing in a global environment, giving an investor true means of diversification.Global Investments for the local Sri Lankan through Gold and Foreign Currencies
In Sri Lanka however we are primarily left with only a few options namely equities, treasuries and real estate for the long term investor. The Equity markets have gained 2700% from 1990 and 1500% without the boom we experienced in 2009. This proves that the equity market has clearly been the long term winner, unfortunately the volatility that we experience in equity markets make it a risky investment during bear cycles. Stock markets are cyclical and given the rising interest rate environment that is expected to increase by another 200 basis points, Depreciation of the LKR and expected further rises in fuel prices makes an investor in Sri Lanka desperate for other options.
Buy US Dollars
The US dollar is still a global safe haven and a Sri Lankan who kept converting his monthly salary into dollars since the 1990’s would stand to gain 240% to date on his investment / savings. There is discussion about the Renminbi (RMB) taking centre stage as the future base currency of the world. Even if these speculations were true such a transition would take over 50 years. This makes accumulating dollars a safe haven a good investment for the local Sri Lankan.
Bullish Commodity Currencies
Given the vast shortages of commodities and the rising demand from Asia, along with geopolitical tensions makes investing in commodities a high probability bet for the next decade. The encouraging macro trend will boost commodity exporting economies and therefore will have a positive effect on their respective currencies namely the Australian dollar, Thai Bart, Canadian dollar and the Indonesia Rupiah.
GOLD and Silver
Gold has gained 320% since 1990’s and has been less volatile than the stock market. The continuous printing of money by the Federal Reserve to help stimulate the world economy has propelled physical assets to multi decade highs. The expected inflationary pressures that are expected in the next decade due to the vicious debt cycle that we are entering will give rise to the metals over the next decade.
Sceptics currently question if Gold is a possible bubble. Technically gold traders are in the process of deciding if the metal will trade towards USD 2000 an ounce or USD 1500 an ounce. Currently the metal trades at USD 1665 and the market awaits further comments from Washington about the possibility of more monetary easing which will push gold even higher.
Singapore Dollar to store your value
Singapore is one of the fastest growing financial hubs in the world attracting vast amounts of capital from across the globe. The currency the Singapore Dollar (SGD) is backed by international assets to maintain public confidence is also pegged to a basket of currencies monitored by the Monetary Authority of Singapore. The currency has only gained by 35% since the 1990’s and is used mainly as Asia’s safe haven to store value over the next decade rather than an investment option for a speculator.
Contrarian Investments
The EURO Zone which is currently in recession and debated if the union should be broken up presents a contrarian investor with an opportunity. Euro politicians will argue that the worst is over and an investor who believes in such a thesis should buy the currency.
Summary
Foreign currencies which are available in Sir Lanka present a local investor with an opportunity to globally diversify his investments and take advantage of large macro trends. However it is important for investors to first understand his or her personal investment risk profile and the time horizon given for each investment before putting your money to work.
(MarketsNeverLie is a pen name for a global investment specialist who has technical experience in global markets ranging from commodities, currencies and equities. The author has worked for a major global bank and still runs his own trading operation in Singapore. The author’s thoughts, comments and trade ideas on global investments can be found on twitter and stocktwits under his pen name MarketsNeverLie. The author encourages investors to tweet him for specific advice regarding their investments.)
Source:ft
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