Foreign currency actions and currency risk (2/4)

In our previous article we've seen how dangerous it can be to rush headlong into apparent bargains on foreign markets. It's true that our portfolio fait la part belle aux titres US car les plus beaux payeurs de growing dividends se situent actuellement outre-Atlantique. Il faut néanmoins prendre certaines précautions avec ces valeurs car investir dans une monnaie tierce peut s'avérer risqué sur le long terme. Par chance, il existe plusieurs méthodes qui permettent de limiter ce risque. Nous verrons que les plus évidentes ne sont pas forcément les meilleures.

The first reflex is to say that, in order to limit currency risk, we're going to keep a limited proportion of foreign-currency assets in the portfolio. You don't need a PhD in economics to understand this. However, this raises another problem: which local-currency investment should we turn to?

One solution is to hold on to cash. It pays off in the short term, as you keep a bit of money aside to buy securities that will be sold off at some point on the market. But in the long term, the value of cash is eroded by rising prices.

The other option is to buy bonds in the local currency. A good point which, while lowering currency risk, also makes it possible to diversify types of investment. But the problem is that in recent months, everyone has had the same idea at the same time, selling equities to buy fixed-income bonds. Bond yields are just miserable at the moment (10-year Swiss Confederation = 0.77%), not to mention the risk of price rises that could be added to them.

But then, it's not that complicated, just buy shares in local currency. That's true. But we shouldn't forget, whether we like it or not, that we live in a globalized world, that borders are real sieves and that most companies listed on the stock exchange generate a significant proportion of their sales abroad. And this is all the more true for a small country like Switzerland. This means that a strong franc/weak dollar is bad for exports, and that the results of foreign branches, converted into CHF, look a bit peanuts.

OK. Bon, alors on investit dans des petites sociétés locales qui n'exportent pas ! Bonne idée. Mais elles travaillent pour qui ? Pour les plus grandes sociétés qui, elles, exportent. Blanc-bonnet, bonnet-blanc. Oui, mais il y aura bien des boîtes qui ne travaillent qu'en local, pour des clients purement locaux... ah... là c'est déjà mieux, effectivement, on a par exemple certaines entreprises du secteur alimentaire qui produisent pour des clients du pays et qui peuvent même bénéficier d'une force de la monnaie locale pour acheter à l'étranger. Même s'ils comportent une petite part d'exportation, Bell And Emmi possèdent ces caractéristiques.

However, even if you can protect yourself in part against currency risk in this way, it's impossible to avoid it altogether. Apparently, the companies mentioned above are not directly affected by a fall in the dollar against the Swiss franc. However, if the franc is too strong over the long term, as is currently the case, this will lead to redundancies in exporting companies, and therefore also among their local suppliers, and thus to higher unemployment in Switzerland, accompanied by a recession and a drop in domestic consumption. It's less violent and less immediate than for the big exporters, but the effect is there nonetheless.

What's more, this method considerably restricts the choice of companies in which to invest. This solution must therefore be combined with other strategies, which we will discuss in our next chapters. upcoming articles.