In global portfolios, FX and Equity are 2 separate trades

Since January 4, 2023, the Nikkei 225 (in JPY terms) has climbed 29%.

But from that date, the Yen has weakened 12%……(or the USD has strengthened by 12%)

and so in USD terms, the Nikkei 225 has only risen 17%.

But that’s history.

The lesson for those who are unhedged is multi-faceted.

Today, sellers of Japanese assets would do well holding onto their Yen, if you’re not forced to convert back to your ‘home’ or ‘base’ currency.

i.e. The Yen is too weak (and near extremes) to convert back to your original USD, EUR, GBP, CAD or AUD.

Those not holding any JPY, may ponder buying some Yen considering it’s current (near extremes) low.

If you are not naturally owning various currencies (in to settle your foreign acquisitions) nor running a FX hedging strategy, then treating the FX and Equity as 2 seperate trades and having specific views about each of them is important.

Otherwise you could’ve stayed in the USD the whole time, for the Nasdaq 100 soared 37% since January 4, 2023.

And for ‘non-natural’ USD holders, you would’ve made a few more percent as your ‘home’ currency most likely weakened against the Greenback.

June 30, 2023

by Rob Zdravevski

Karri Asset Advisors

rob@karriasset.com.au