Wise Up!MONEY MATTERS

Playing the FX market may look like the way forward in 2023 but don’t believe the hype. Buying and selling foreign currencies through a low-cost intermediary is your better bet. Boon Tiong Tan reports

022 was a year when many HongKongers felt the pinch, as bond, stock and property markets all headed south. However, there was a bright spot – the US dollar (USD) strengthened significantly during the year. In September, the British pound (GBP) almost crashed to parity (GBP1 = USD1) and in October, the Japanese yen (JPY) broke JPY150 to USD1.

With the Hong Kong dollar (HKD) pegged to the US dollar, HongKongers continue to benefit from a strong US dollar moving into 2023. This means overseas properties are more affordable and tuition fees at foreign universities are cheaper. We have more spending power as tourists in Thailand, Japan, the UK and many more countries.

The currency or foreign exchange (FX) market has an impact on everyday life, and it’s the biggest financial market in the world, bigger than both bond and stock markets. It is conducted electronically over the counter, which means that all transactions are done via computer networks among banks and other players, rather than on a centralised exchange. The biggest centre for FX transactions is London, followed by New York and Singapore.

For decades, before it was trumped by the nonstop, 24/7 crypto currencies market, the FX market had by far the longest trading hours in the financial markets. It is a 24-hour market that starts trading on Monday morning in New Zealand and ends on Friday evening in New York.

Investing In Foreign Currencies

The FX market has been touted as an asset class just like stocks, bonds and commodities. With both stock and bond markets tanking this year, should you diversify and invest in foreign currencies, or even trade them?

The developed countries’ currencies tend to move in large waves and take years to move a third or more. If you were to put 10% (probably the highest percentage a prudent financial planner would recommend) of your assets into the right foreign currencies, your portfolio’s return is not going to improve much. Worse still, you might pick the wrong currencies and suffer losses.

If you’re convinced by some experts, advertisements and websites that it is not difficult to pick the right currencies and time the FX market, think again. George Soros, the billionaire hedge fund manager, who in 1992 made a billion US dollars by ‘breaking the Bank of England,’ wrote that while the stock market has two variables, the FX market has seven or eight. The FX market is undoubtedly much more complicated than the stock market.