The currency market just got a lot bigger!

Transcription

1 The currency market just got a lot bigger!

2 Thomas Fischer MBA 38 years in financial services Currency trader Jyske Bank/JGAM Editor Currency Cross Trader Consultant ENR Asset Management Golf Copenhagen Marathon 05 4:10 Copenhagen Marathon 07 4:08

3 The size of the FX Market Trillion US dollars every day! US dollar 87% of all trades UK (41%) & USA (19%) largest jurisdictions

4 Model Portfolio Theory Diversification reduce unsystematic risk Best level of diversification efficient frontier Global diversification currency overlay Systematic risk cannot be diversified away. 4

5 5 US Efficient Frontier

6 Active Currency Overlay Absolute return strategies Active Management seeking excess return (Alpha) Profitting from inefficiencies Allocating percentage to currency managers to get international exposure 6

7 7 Global Efficient Frontier Active Currency Overlay

8 Global Diversification Individual Stocks, Bonds & Currencies (no currency hedging) Global Funds (hedging within Fund) Regional Funds (hedging within Fund) Emerging Market Funds (hedging within Fund) Country Funds (hedging within Fund) 8

9 Purchasing-Power-Parity Long term measurement based on inflation Fundamentals always right in the long run but. Currency rates affected by short term traders Currency risk needs to be watched

10 Factors affecting currency rates Macroeconomic factors GDP/Unemployment/Growth Interest rate differential Market trends momentum/relative strength index Central banks 10

11 FX As An Asset Class why currencies make sense in an uncertain climate 24 hour trading Low spreads between buying/selling Liquid daily volume $ 5+ Trillion (NYSE daily turnover $ 55 Billion) Many participants difficult to manipulate markets Anonymous Trading Absolute returns Not correlating with other asset classes Even during the 2008 Meltdown trading remain liquid

12 Returns in a Zero-Sum Market As the most liquid market in the world, shouldn t currency markets be the most efficient, and so not offer consistent returns to investors? AND How can a zero-sum game (or a long-short market) such as currencies offer consistent returns to investors? Who are the systematic losers?

13 Liquidity-Seekers (or Non-Profit Seekers) International investors who buy bonds, equities, or credit, who either fully hedge their currency exposure, or do not hedge at all Central banks who buy or sell currencies in order to maintain an exchange rate policy Corporates who need to export, import or engage in FDI Tourists

14 Profit-Seekers Currency Managers Dedicated currency-only hedge funds Global macro hedge funds, who trade currencies as well as other markets Retail Traders (Trading platforms) Editor Currency Cross Trader

15 Analyzing Currencies like stocks GDP Interest rates Employment rate FDI Sentiment Charts 15

16 EURO 11 member states introduced EUR January 1999 Notes and coins were launched on 1 January 2002 Today 17 member states 33% of all currency trades 27% of world foreign exchange reserves

17 Member States using Euro Belgium Germany Estonia Ireland Greece Spain France Italy Cyprus Luxembourg Malta The Netherlands Austria Portugal Slovenia Slovakia Finland

18 Euro Statistics GDP: 12,4 trillion USD (17 countries) Population: 332 million (17 countries) Government debt: 85% of GDP Unemployment: 12.1% 10 year bond: 1.76%

19 Eurozone alphabet soup!

20 ECB alphabet soup - explained! EFSF = European Financial Stability Facility created 2010 EUR 440 Billion EFSM = European Financial Stabilisation Mechanism created 2010 EUR 60 billion SMP = Securities Markets Programme ECB purchase in secondary bond markets discontinued 2012 now OMT ESM = European Stability Mechanism created 2012 EUR 500 Billion LTRO = Long-Term Refinancing Operations existed since 1999 but Mario Draghi introduced 3 year lending in 2011 EUR 489 Billion in 2012 EUR 529 Billion OMT = Outright Monetary Transacions 2012 ECB purchase secondary sovereign bond markets

21 The EURO Source: BCA

22 USD GDP 15, 6 trillion Population 316 million 50 states 87% of all currency trades 63% of World foreign exchange reserves

23 USD Statistics GDP: 15,720,000,000 Population: 316 million National debt of GDP: 100% Unemployment: 7.30% 10 year Government bond 2.62%

24 EUR/USD Source: Jyske Markets All time high: (07/18/08) All time low: (10/26/00) Average since introduction: Current: Daily turnover: 1.3 trillion

25 Currency Cross Trader Research and input from trading room Friday Updates Frequent trade recommendations Targets identified Leverage suggestions Visit The Sovereign Society booth

26 Thomas Contact Details