Exploiting the dollar's drop

Friday, November 26, 2004 | 0 comments »


You have £50 to invest and, amid the currency turmoil, wonder "what to do?"

No-brainer number one is to look at US exporters at the expense of their Asian counterparts; and number two is to consider Asian (and, for the eternal optimists) euro domestic firms - that is, the non-tradeables. Sectors like telecoms, real estate, banking and the like spring to mind as candidates able to profit from cheaper imported inputs and/or the relative decline of value to be found in alternative foreign investments.

Consider a couple of Asia plays to test the thesis.

KT Corporation (aka Korea Telecom before marketing convinced everyone that the new name was a great way to sex-up the firm) is a no growth enterprise that dominates its home market but pays a handsome dividend. It bears the weight of an unpredictable regulator on its shoulders and faces increasing competition. Oh, and it's up over 10% since 11 November on the back of this currency rotation and an analyst upgrade. That's some serious gunslinging. [Editor: you did confirm that peace hadn't broken out with N Korea before coming up with that, right?]

How about Asian banking, then? Fortunately, some sanity prevails here. HSBC, Standard Chartered and the lesser known but striking prospect Bank of East Asia Ltd have not gone mad on the dollar's swoon. But, alas, they were already so generously valued (relative to many international peers) that they remain glued to the non-gunslinger's "watch" list.

And it goes on thus, leading mostly back to "what to do?" Frankly, if this is the long-heralded unwinding of the international current account imbalances, it's distinctly underwhelming. There is surely greater fall-out to come.

Amid all the early shooting, hold your fire.

The author has no investments in any companies mentioned in this article.

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