The global currency market is drawing more investors by the day and experts believe people can turn impressive profits in currencies, but only if lessons from 2011 are not forgotten. Investors are warned to steer clear of the euro as the region attempts to find a solution to its currency woes, and the Japanese yen and Brazilian real are also not to be trusted. Other currencies that could go either way are the British pound, Australian dollar and Swiss franc. Instead, analysts say the must-have currencies are the Canadian dollar, Chilean peso and South Korean won. For more on this continue reading the following article from Money Morning.
If 2011 taught us one thing, it’s that currency investing can be a dangerous business.
For instance, the euro – the simplest of hedges against a declining dollar and the U.S. Federal Reserve’s expansive monetary policy – has run into difficulties, losing billions for even the most sophisticated Wall Street banks.
But that’s not all. The Brazilian real, which was one of the best performing currencies of 2010, has dropped back sharply in 2011.
Still, if you harness the lessons of 2011, you can take advantage of the new opportunities set to emerge in 2012. In particular there are three currencies every investor should own.
I’ll get to those in a moment. But first, I’d like to fill you in on what currencies to avoid.
This is just as important – maybe even more so.
Obviously, the euro is not to be trusted. If its problems were confined to Greece and Portugal, they would be surmountable.
But they’re not.
The extension of problems to Italy and Spain, which are both too large to bail out, makes the Eurozone liable to explode, split in two, or simply witness a mass default of several of its countries and much of its banking system.
Certain individual European shares may be a good buy. And German government bonds may be a good buy, since the German currency would explode upwards if the euro split.
But the euro itself? No thanks.
The Japanese yen isn’t safe either.
Unlike most other currencies, the yen has risen more than 50% against the U.S. dollar since 2007 and is up another 6% since the beginning of 2011. In short, it has done what President Obama would like China’s yuan to do.
Needless to say, Japanese exporters are suffering at these levels, and the country’s government debt, over 200% of gross domestic product (GDP) and all denominated in an appreciating yen, has become a serious worry. While the yen could rise further, it must be regarded as very unsafe.
The pound sterling is equally unsafe, but for different reasons.
The British government is running a budget deficit as large as that of the United States, while the British economy is highly dependent on the very unstable and overblown financial services sector.
This article was republished with permission from Money Morning.