US Investors Must Hedge Currency Exposure

June 17, 2015

Saying entire countries are trying to stimulate demand by devaluing their currencies, global macro investor Richard Bernstein argued that U.S. investors must absolutely hedge currency exposure wherever they can.

And, in case investors missed it, South Korea is the next frontier of the currency-hedging craze, he said.

“Currency is the most important issue,” Bernstein told the audience today at ETF.com’s second annual Global Macro conference in New York.

“The global credit bubble left the world awash in productive capacity, and if you’re a country, you have to be like Walmart,” he added, saying being like Walmart amounts to weakening one’s currency.

US ‘Secular Winner’

Relatively speaking, the U.S. is the “secular winner” because the world’s biggest economy has been leading the global economy out of the financial crisis. That, in turn makes currency hedging imperative for U.S. investors who are dealing with clear dollar strength for the first time in 15 years.

The chart below showing yen, via the CurrencyShares Japanese Yen Trust (FXY | B-99), and euro weakness, via the CurrencyShares Euro (FXE | B-98), against the dollar makes the relatively new trend crystal clear.

Chart courtesy of StockCharts.com

Bernstein said Japan, Europe and, as noted, South Korea, are clear winners in this currency devaluation trend, essentially because prevailing inflationary pressures in each of those three economies enables their respective central bankers to pursue low-interest-rate policies.

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