International investments are a sensible way to combat inflation and protect purchasing power. International investments can be leveraged with loans with low interest rates. Yet recent messages have shown growing concerns over value in many international investment equity markets worldwide. There is enough concern that I liquidated all my equity funds. My liquid international investment portfolio was up over 35% last year so it was not easy to walk away from this type of growth…but I did.
However I do not plan to quit high growth in my international investments cold turkey. I’m switching from equities to bonds and some bonds offer international investment excellent returns.
There are two international investment value concerns with borrow low deposit high now. One is that many equity markets have spurted beyond good value. Second one of the great currencies to borrow, the Japanese yen, has fallen and is at a four year low. This creates profits for current yen borrowers but at this low ebb the yen may be ripe for recovery. This reduces its value as a currency to borrow.
During times of growing borrow low deposit volatility risk, a way to lower the chance of a forex loss is to invest in currencies linked to the loan. For example borrow Czech koruna and invest in Romanian leu (RON) and Russian rubles (RUB).
These currencies are all part of Europe, plus the leu and ruble offer good value.
Jyske bank says of the leu: “We recommend investors to buy Romanian bonds as an element of diversification in emerging-markets portfolios. At the moment we are able to offer the bond 6.5% Eksportfinans 2009 denominated in RON at a yield to maturity of 6.45%. Romania is heading for EU membership, it enjoys fair economic growth, and inflation seems to be falling. Also, the EUR/RON rate has shown a stable trend. The biggest risk involved in the investment is the large current-account deficit. The rating agency S&P has awarded Romania a BBB- rating, and the rating awarded by Moody's is one notch lower, at Ba1. Both agencies have put the country on positive outlook. It is widely agreed that membership of the EU will have a favorable effect on the Romanian economy and ensure that the reform process will continue.”
The second bonds that offer value now are denominated in Russian Rubles.
The Russian currency is supported by strong economic growth, a current-account surplus, low debt plus large oil, gas and currency reserves.
There are now liquid Ruble bonds available and Jyske Bank recommends the 7.25% Bank of Moscow due 25.11.2009. These are rated A3/BBB. The bank is owned by the city of Moscow and has a good reputation. Russia now has the third largest currency reserves in the world.
Finally The Turkey lira TRY also offers value from the highest bonds yields. Though it involves
a higher exchange-rate risk it is also nominally linked to the euro as Turkey aims towards EU membership as well.
Today's Czech financed multi-currency portfolio is a balance of leu, ruble and lira bonds based on an investment of $50,000 and a loan of $100,000. $50,000 is invested in each bond.
|RON||6.5% 12/09/2009 EKSPORTFINANS||6.37%|
|RUB||7.25% 25.11.2009 Bank of Moscow||6.93%|
|TRY IE 20||19/11/2007 DEPFA BANK PLC||19.31%|
This portfolio earns $16,480 a year in interest. The loan cost is $3,875. The income left is $12,615 or 25.33% return on the original investment. This portfolio then may rise or fall versus the US dollar. The risks are forex loss in case the borrowed koruna rises. There is little likelihood of loss on the bonds as they are all quite short term. However no investor should leverage more than they can afford to lose.
International equities may continue to offer great value but this portfolio shows that there are alternatives in fixed returns.
You can track our five 2007 multi-currency portfolios with us. Learn why we have chosen these portfolios in a sixteen page email report about how 13 economic forces that may well shape investment markets this year.
Here is how these portfolios have performed so far since November 2006.
|TOTAL APPRECIATION TO DATE|
Learn how to get the report free at https://www.garyascott.com/catalog/bldh
You can finish this message and see our winter blackberry meringue pie at https://www.garyascott.com/international_investments/190.html
Or until next message, may your international investments go well!
P.S. Join us in the Ecuador sun this winter. Here is a schedule of the courses Merri and I will sponsor and or conduct.
Feb. 20 – 25, Tues.-Sun. Import-Export Course.
Mar. 9 – 15, Fri.-Thurs. Expanded Super Thinking + Spanish.
Mar. 16 -18, Fri.-Sun. International Business and Investing Made EZ.
Mar. 19 – 21, Mon.-Wed. Andes Extension & Real Estate Tour.