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  1. #31

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    Quote Originally Posted by cendrillon:
    If you own stocks of companies that serve an international market I don't think currency risk is an issue, its hedged out. For example whether you own HSBC stock in HK, London or the US doesn't really matter, even though the stock is listed in 3 different currencies. In fact, in the event of a brexit hard landing I'd rather own a London listed stock that serves an international market than say a US listed stock that primarily serves the UK.
    sorry can you elaborate more on this???

    for an international company - the fx risk may be hedged against their base currency / home country

    but you buying their stock in foreign currency doesnt protect you from that at all!

    unless that company is hedging their fx risk to HKD as their base currency!

  2. #32

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    Quote Originally Posted by aussie_oi_oi_oi:
    sorry can you elaborate more on this???

    for an international company - the fx risk may be hedged against their base currency / home country

    but you buying their stock in foreign currency doesnt protect you from that at all!

    unless that company is hedging their fx risk to HKD as their base currency!
    I'm not sure what isn't clear here. Let's say a company listed in London with a stock trading in British pounds sells only to US consumers and has sales of $100M USD per year. Say the British pound devalues by 20%, the earnings of this company in USD remains unchanged, but it's earnings in British pounds goes up by 20%. All things being equal this will lead to a 20% increase in stock price in British pounds.

    If you convert the stock price to USD you'll see that before and after the British pound devalues makes no difference to the price in USD. Point being that where the company is domiciled and where the stock is listed is irrelevant. All that matters is the currency of the market(s) the underlying company serves.

    If you want an extreme example think of a gold ETF. Do you think the currency it's listed in leads to currency risk. Absolutely not.
    nivantj likes this.

  3. #33

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    Quote Originally Posted by cendrillon:
    I'm not sure what isn't clear here. Let's say a company listed in London with a stock trading in British pounds sells only to US consumers and has sales of $100M USD per year. Say the British pound devalues by 20%, the earnings of this company in USD remains unchanged, but it's earnings in British pounds goes up by 20%. All things being equal this will lead to a 20% increase in stock price in British pounds.

    If you convert the stock price to USD you'll see that before and after the British pound devalues makes no difference to the price in USD. Point being that where the company is domiciled and where the stock is listed is irrelevant. All that matters is the currency of the market(s) the underlying company serves.

    If you want an extreme example think of a gold ETF. Do you think the currency it's listed in leads to currency risk. Absolutely not.
    Yeah, I'm kind of with Aussie on this. I don't understand what you say, but clever people than me (including you) agree with you, so I"m going with it.

    https://andrewhallam.com/2016/05/exp...-is-listed-in/

  4. #34

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    Following on this topic I have a similar question:

    I used to invest 20K every month on the tracker, now I cashed most of it making a decent profit and I'm wondering what's next

    I feel like I should diversify a bit more hence I was thinking of doing the below:

    25% 03140 VG S%P 500
    25% 03101 VG FTSE DEV EUR
    50% 02800 TRACKER

    Does it make sense? Or should I lower my Tracker %?
    Does it make sense to add 02828 HS H ETF in the mix?


  5. #35

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    Quote Originally Posted by pin:
    Yeah, I'm kind of with Aussie on this. I don't understand what you say, but clever people than me (including you) agree with you, so I"m going with it.

    https://andrewhallam.com/2016/05/exp...-is-listed-in/
    Here's a simple example. Do you think it matters which exchange you buy HSBC on? Hong Kong, London or the US? They trade in HKD, UKP and USD respectively. Do you think it makes any difference?

    Go through the same example with gold. If you buy an ounce of gold through an ETF, do you think the currency it is listed in matters?

    Can you see why there would be an arbitrage opportunity if this wasn't the case?

    If this is not clear I'll explain to you over a beer sometime.
    Last edited by cendrillon; 13-09-2017 at 06:02 PM.

  6. #36

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    Quote Originally Posted by nivantj:
    But then why would anyone invest in international stock in other currency when its available in local currency! Gives more flexibility in terms of liquidity.. I was thinking about stocks/other asset classes domiciled in that country which is probably the whole point of diversification! Regarding Brexit, i was thinking about investment done before something like that happens and somehow one is unable to get rid of it on time either due to not easily liquidable nature of asset or wait-game in anticipation of things might improve and all that which might cause major currency loss!
    I have an account in Europe and in the US.
    I buy the same stock at two different bourses and in different currencies.
    It saves me trading fees, e.g. buying in Frankfurt instead of buying from EU at NYSE, Which is also possible, I can buy in a few hours earlier, no need for currency conversions
    nivantj likes this.

  7. #37

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    Original Post Deleted
    There are tax reasons of course... For example if we bought a European ETF listed in the US we would lose 30% of dividends for no reason. Buying the equivalent ETF in London would be much more effective.
    traineeinvestor likes this.

  8. #38

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    Thanks cendrillon, example is clear

    I skipped over your message about multiple listing and commented on the first part of your sentence without reading the rest serves me right


  9. #39

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    Quote Originally Posted by aussie_oi_oi_oi:
    Thanks cendrillon, example is clear

    I skipped over your message about multiple listing and commented on the first part of your sentence without reading the rest serves me right
    If we think a level deeper, if a company is based in the UK and has UK workers, and exports to the US, then a devaluation of the UKP will actual increase the value of the company, even when measured in USD, because it's costs go down.

    A company is really an asset like gold or oil. We can measure it's price in any arbitrary units we want but it's irrelevant. You can measure my height in centimetres instead of inches but it doesn't make me taller. It's just arbitrary units of measurement.

    With this in mind you can see how something like QE which devalued the USD caused US stock prices to inflate, in particular for exporters.

    If you want a real mind f&#k buy me a beer some time and I'll explain how stamp duty taxes on transactions for stocks and high frequency traders that scalp us actually are a net benefit for people who buy and hold even though they are taking money out of our pockets (hint: both stamp duty and HFTs depress PE ratios). In many ways it really is a zero sum game. It doesn't matter if you get screwed as long as everyone else gets screwed more.
    Last edited by cendrillon; 13-09-2017 at 11:26 PM.

  10. #40

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    Quote Originally Posted by TheBrit:
    I would be cautious of analysis like this using simple ratios. The US and Chinese markets have very big composition differences, which explains part of this disparity. HSI has a lot of Chinese banks, which many people believe are essentially bankrupt and the low PER reflects the fact bank earnings are very low quality - they can essentially be made to be any number under the sun simply be adjusting bad loan provisioning. Likewise there are lots of other SoE's which are run for the benefit of the CCP rather than minority shareholders.

    You have Tencent but you also have a lot of utter dross that deserves to trade at low multiples because they don't earn good returns, the balance sheets are poor or they are simply run for the benefits of the CCP first, employees second, customers third and minorities not at all.

    Compare to the US where you have scores of strong companies, professionally run and much better disclosure and protection of minorities. There is also a strong argument that companies with stable earnings should trade at higher multiples than cyclical businesses for many reasons - the US has far more food, pharma and consumer companies than China/HK

    Anyway, simple PER comparisons neglect balance sheets( levered companies should be cheaper than unlevered companies) , consistency of returns (volatile RoE's should be cheaper than stable RoEs), capital allocation ability (companies that can profitability invest cash should be more expensive than those who can't), cash conversion (companies who generate cash in excess of accounting earnings should be more expensive than those that don't), growth runway (companies with plenty of growth ahead should trade on a higher multiple than those who have peaked out) etc etc. Many factors to consider, not just aggregate PER.

    Pretty much this. I'm deterred from buying the hang seng because there's a LOT of exposure to Chinese companies, banking sector, etc. I like tencent though, so I just bought that instead. Because tencent is so heavily weighted in the HSI, This is why the tracker has done so well.

    Also look at the HSI today. Yes it's done well... But it's only slightly above where it was in 2015. Meanwhile, the US market has performed much better and has more solid companies too.
    TheBrit and shri like this.

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