Over the long term it can be a good idea to diversify your investments offshore. Because of the tendency for exchange rates to vary up and down, timing can be a major issue for when to invest and when to take your profits. In this regard we look at foreign investment in 2016. Bloomberg Business notes that there is a glimmer of hope in 2016 for the world’s most battered currencies.
The outlook is improving for some of the world’s most-battered currencies after a plunge in raw materials spurred routs from the Colombian peso to Russia’s ruble in 2015.
Analysts are forecasting gains for the currencies most linked to oil even as they see more declines in store for those with stronger ties to industrial metals, such as Chile’s peso and Peru’s sol. After its worst year in more than a decade, Canada’s dollar may bounce back with crude, while the Australian and New Zealand dollars are poised for tumbles as policy makers consider interest-rate cuts to spur growth, forecasts for next year show.
While a slowdown in China continues to hurt exporters, signs that the world’s second-biggest economy is stabilizing and increased clarity on the timing for U.S. rate increases are bolstering speculation that commodities will rebound from their worst year since 2008. Crude, grains and soy are all expected to rise next year, even as precious metals such as gold slip or stay little changed, according to analysts surveyed by Bloomberg.
The point is to invest offshore when a currency is weak in relation to the U.S. dollar and sell when the situation is revered. Due to the fall in oil and other commodity prices many foreign currencies have suffered. Here is a chart from Bloomberg with anticipated movement of foreign currencies versus the USD in the coming year.
Simply on the basis of a better currency outlook one might consider directing foreign investment in 2016 towards Canada (CAD), South Africa (ZAR), Colombia (COP), Russia (RUB) or Norway (NOK). Nations to avoid in anticipation of a further currency slide are Chile (CLP), Peru (PEN), Australia (AUD), Brazil (BRL) and New Zealand (NZD). One nation left out of this list and whose currency may well slide next year is China.
There are a lot of good reasons to avoid China for foreign investment in 2016. The country’s real estate bubble has not yet been resolved. Chinese exports and imports are falling as its economy slows. And there is a huge load of US dollar denominated debt that may lend itself to a hard landing of the managed capitalism economy. The South China Morning Post predicts a measured fall in China’s yuan.
While the People’s Bank of China might be opposed to a sharp depreciation in the value of the yuan, the reality of tighter US monetary policy does help justify a measured fall in the value of China’s currency against the dollar.
It would also be a natural by-product of China’s own economic policies, which, in 2016, will probably be aimed at boosting domestic aggregate demand through continuing application of accommodative policies.
There may be a time in a year to two to invest in China again but for the time being expect to see a falling yuan and weakening Chinese economy.
Eventually the recovery story of the year could be the Colombian peso. The value of the peso is linked to the price of crude oil from which Colombia derives most of its foreign currency. Despite the fall in value of the Colombian peso due to low oil prices Colombia’s economy grew the most of all South America this last year according to Latin Correspondent.
Trade and agriculture exports helped Colombia’s economy to pull in a 3.2 percent year-on-year growth this quarter. This makes Colombia the fastest growing economy in South America.
Hotels, restaurants, retail, and business services contributed a total of 4.8 percent to the growth.
An important factor for Colombia is progress in talks with rebels in Havana to end the longest running civil war in the hemisphere. Colombia appears to be one of the nations that are best positioned to provide a good return on foreign investment in 2016.
As always do your own homework before investing.