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Point of View in the Financial Markets

Just when you think you know something, you have to look at it in another way. Even though it may seem silly or wrong, you must try.” John Keating “Dead Poets Society

In quantum physics, it is called “Point of view of the observer.” We could call it “Point of View of the investor.” If applied to the stock exchanges emerge curious results. For example, if we look at the performance of the London Stock Exchange from the perspective of a Londoner, the price year to date has risen to 16%. But if we look at the same Index, from the perspective of an investor, the performance is overturned (-5%).

This example shows that the exchange effect can be decisive also in the stock exchange. We are often used to separate the two worlds, but in reality, if you are betting on a Market with a different currency, you should not underestimate the dynamics and volatility of the currency in such a Country.

The rule is the following and is also very intuitive. If a European investor buys Stocks in USD currency, the exchange rate effect will be positive, if the USD raises up against the Euro, this will increase the overall asset performance. The opposite will happen if the currency will have lost its value against the Euro. This second scenario occurred to those who invested after Brexit. In the FTSE-100 the main index of the London Stock Exchange, the pound since then has lost 15% against the euro, the positive performance of the index FTSE-100 (+ 12% for a Londoner) becomes negative for a European investor. The UK shares have grown in terms of the pound but by the time of the conversion to euro, the investor loses (this because that pound meanwhile has less value compared to when they were bought).

In Tradeview we know what to do to help you.

If you have an equity portfolio in a foreign currency we can teach you how to manage the exchange risk, we have numerous solutions for your needs.

Raimondo Perfetto
Account Manager

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