Does it matter what currency denomination my shares are in?

Currencies can be confusing..... I just read a great article in MoneyWeek by Cris Sholto Heaton, which I shall attempt to summarise here:

The easy bit: I buy some US shares in July last year. Even if they don't go up in face value, I will have made a profit if I sell them today, because my home currency (sterling) has fallen in value against the dollar during the time that I have held the shares. In other words the dollars that I get from the share sale will buy me more  £ sterling than I started with.

2015 03 08 GBP USD II


The hard bit: If I want to buy a European ETF (ie Vanguard European ETF  VGK)that is priced in dollars, surely the GBP:USD rate will affect the deal? It seems not. The only currency that matters is my buying currency (£ sterling) and the currency of the underlying stock (Euros). The fact that the ETF is priced in dollars does not affect the deal. There is a triangle of equilibrium with the currencies that ensures that it does not make any difference. If this were not the case it would be possible to keep buying and selling the product and making the difference in the GBP:USD rate risk free.

Summary: If I buy a foreign denominated stock, I can either profit or lose from the shift in exchange rate between my home currency and the currency of the foreign denominated stock between the date of my purchase and stock sale. However, if there is a three-way currency triangle, all that matters is the relation ship between my home currency denomination and the denomination of the foreign stock, not the other currency that it might be quoted in.

The combination of a strong stock and a strong currency is a particularly powerful one:

2015 03 08 GBP CHF

The above graph shows how the £ sterling has dropped gradually against the Swiss Franc over the past 10yrs. The implication with this is that anything denominated in Swiss Francs (CHF) will have gone UP in value by approx 50%. If this is combined with buying something that also goes up in actual CHF terms, then the effect is pretty powerful. Here is a ten yr graph of Nestle:

2015 03 08 Nestle



In that 10yr period Nestle's CHF price has more than doubled, in addition to the currency shifting increasing its GBP value by approx 50%. Food for thought? (yep, it's a pun).

Here are my thoughts about the markets over the past week (4 mins)

My trade for this week is buying Segro:

2015 03 08 Segro


Why am I buying it?:

  • It made a new high this week

  • The ma20 is above the ma50.

  • The ma50 is rising

  • the graph makes a simple 'bottom left to top right' line. ie its trending upwards.

  • there are higher highs and higher lows in place.

This is trend trading, its what this site is all about. If you want to have a look at how my other trades are doing, then click here (8 mins). Some of these are not trend trades, and make me want to weep......

Have a great week!



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