Have you lost money because your local currency depreciated against major currencies? What is your hedging strategy?
If live in a developing country and invest in local investments instruments, you will agree that devaluation of local currencies is by far the number one reason why most good projects do not yield returns promised by promoters and fund managers.
And if you are one of those that invest in Unit Trusts, Treasury bills, Government Bonds and life insurance, you might be forgiven for thinking that such investment will secure a return on investment as calculated and promised by financial institutions. After all, every day – you, I and everyone else are constantly bombarded with offers of various investment schemes that promise some kind of profit at the end of a proposed period.
After a while, of course, you begin to realise that these schemes are not worth your hard earned money as depreciation of your local currency begins to bite and erode even the principal amount. Most people pushing these schemes know this.
Do you own any local stocks? Do you own any local currency denominated traditional portfolio or fixed income products? Are you looking for a strategy to safeguard your investment from devaluation of your local currency? If the answer to either of these questions is YES, then you could benefit from having a foreign exchange trading manager work for you.
Don’t be in the markets exposed.
If you’re an investor in these local currency portfolios and have benefited in the past years by extreme inflation, you really need to take a hard look and work the numbers to check if you really did make a gain.
There was a trend in place during the late 80s to 90s where local treasury bills, bonds and so forth seemed to pay more in value relative to the other foreign currency products and other African assets. This trend continued up to the late 90s in most African countries and now has come to an end. The trend is over!
What does this mean for you?
Its simple, you’re going to lose. Most African economies are net consumers. We buy electronics, automobiles, and clothes. Just about everything you buy is from foreign countries. When your local currency falls, you lose purchasing power and that equates into very real everyday losses. What equates into more, a 25% loss in your equity portfolio or a 25% loss in your everyday expenses day in and day out? If you’re not sure, just have a look at the late 80’s to 90s inflation affect in most African countries. While it appeared as though you were making gains with local investment portfolios your spending and your purchasing power actually depreciated drastically. The answer is that an erosion of your purchasing power will have a greater impact on your quality of life than the intermediate fluctuations in your local investment portfolio. A foreign exchange trading manager can help you.
Don’t think I have anything against investing in Africa-no! I am simply making a point. Let’s also take a look at investing in South African instruments. The South African Rand has been depreciating at an average of 25% per annum between the period 1995 – 2002.
If you invested R10,000 (about US$5,000) in South African savings accounts (for a period of 10 years) in 1994 after independence and expected to receive about 12% per annum, you will be amazed to learn that after 8 years (in the year 2002) your investment plus interest (profits) would only amount to about R24,800 ( about US$2,700). In other words, you would have lost almost half what you originally had.
This example holds true for most currencies in Africa. In fact, this is the reason why most Africans are attracted to the idea of investing in real estate more than anything else. Real estate is a good investment, but not necessarily the best.
Common sense tells me that in order to beat the ever- depreciating weak currencies you ought to switch and invest in hard currencies. But common sense is a rare commodity in the real world and even rarer when it comes to anything to do with finding the right investment vehicle even with major currencies.
Most people who have figured this hedging strategy already simply open a savings/fixed foreign exchange account with a local bank or in some tax heaven t erritory-but only receive between 4% to 10% returns per annum.
A Forex Trading Managed Account ( to some also known as hedging fund account) is the investment vehicle that beats devaluation far more than traditional portfolios.
A Forex Managed Account is an investment portfolio, privately owned by an individual or institution, but managed professionally by experienced traders in the global currency market.
Forex Managed Accounts were designed specifically for the investor who would like a professional to trade or manage funds on their behalf because of major restrictions on his/her time, and who does not have the necessary experience to make the right investment choices.
Here are a few advantages for Forex Managed Accounts:
1. You earn above average returns on your investment. For a US Dollar based account expect an income higher than traditional investment products.
2. Your funds are always kept in a convertible currency accepted world-wide in a first class bank – in your personal name. In other words, you are the only person ( or institution as the case may be) who has access to this account.
3. You have access to your funds within 48 hours without any penalty clauses.
4. You also have access to check the activity of your account 24 hours around the clock showing you the net value- via the internet.
5. A professional experienced trader will take the responsibility of making investment decisions while you continue with what you do best and have extra time to look at other important issues.
6. You are not necessarily affected by the declining value (prices) of any of the currencies your trader will invest in. This is because forex trading is very different from a typical investment portfolio where one might purchase stocks, bonds or real estate. In these instances the investor looks for opportunities to buy at a period low and hold, hoping that the price will increase and then sell at a higher price. In effect the typical investor will simply wait for results and hope they are favourable.
In currency (forex) trading the investor or trader has more opportunity to control the destiny. The investor or trader is always in control of money invested. Investing is not necessarily dependent on a market direction. For example, investment decisions in Forex trading offers the trader to deal with the dollar on both sides of the market. In a Sterling/US currency scenario, when the trader buys Sterling, it means that the trader has also sold USD. The same also holds true when the trader does the opposite. Selling Sterling simply means that the trader has bought US dollars. In other words, the trader can start by selling a currency without first buying it. This ability to invest in both sides of the currencies gives an investor the opportunity to use the two-way market approach as a lucrative alternative to the scenario described above with “wait and see” investments.
If in any way you are adamant that I am against investing in Africa, well, consider the fact that Forex Investment portfolios are an excellent Foreign exchange generating opportunity for developing countries. Remember that this opportunity is not only for individuals, it is also for governments, banks and other financial institutions, as well as multi-national corporations.
Some international banks and multi-national corporations now generate as much as 70% of their income trading the global forex market.
Ian Mvula is the founder of OFT a brokerage dedicated to introducing new retail and institutional investors to investing in managed forex accounts- http://www.forexplatform.com managedfx@forexplatform.com
