Pondering Foreign Exchange

by Peter Bennetto

10.10.22

3 min read

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Australian-domiciled companies comprise only 2% of the value of global stock markets.

Many of Kwala’s investments are in foreign and global businesses, and most are listed offshore.

These companies’ earnings are in many foreign currencies, and they are valued in currencies other than Australian dollars (AUD).

Australia’s huge investment in resource extraction this century - particularly gas, coal and iron ore - plus the recent increase in their prices, has resulted in the AUD value of Australian exports surging in the past two years.

Australia is running large Balance of Trade surpluses (AUD value of exports of goods and services minus imports of goods and services), and even Current Account surpluses, which include the Trade Balance plus foreign income/expenses such as interest and dividends & foreign aid (Australia typically pays more interest and dividends offshore than it receives).

Australia ran Current Account deficits for 44 years until 2019.

The AUD has fallen against the globally strong USD in recent months.

The Kwala Fund seeks to invest in companies that are ethical, contributing to the UNSDGs and providing goods and services for the renewable energy economy of the future. We do not hedge the currency exposure resulting from these investments. Your Kwala investment team’s deep experience in currency markets informs us that currency movements are extraordinarily difficult to predict.

If the Australian Current Account surplus continues it could pressure the AUD higher, which may lower the value of the Kwala Fund’s foreign investments. We will monitor this and note that companies evolve their operations within the changing global economic environment, and the effect of the changes is reflected in the price of the Kwala Fund’s investments each day.

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Investing regularly over the long term means you don’t pick one exchange rate or a specific economic circumstance; you pick the companies, as we do for the Kwala Fund.

Peter Bennetto

#wekwala

Sources and further reading https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/FlagPost/2022/May/Australia_current_account_balance#:~:text=Australia%20had%20a%20current%20account,abroad%20than%20it%20exports%20overseas.
https://www.abs.gov.au/statistics/economy/international-trade/balance-payments-and-international-investment-position-australia/latest-release#data-download