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Expat Investor : July August 2007
Serving expats for more than 16 years J In this issue Sterling investors don't know whether to laugh or cry. So far this year, they've seen the FTSE 100 index pushing through the 6,500 barrier and the US dollar offering them two for the price of one. But the fear that inflation has still further to rise, makes some sterling investors distinctly nervous. Whatever the outcome of inflationary pressures in the UK, investors, and particularly expat investors, should consider the pros and cons of a weak dollar carefully. Last April, the pound broke through the $2 barrier for the first time since 1992. The opportunities and potential profits this presented gave the exchange rate the feel of a 'buy-one-get-one-free' offer. Throughout this year, as the dollar has fallen against sterling, everything American has looked cheap -- from US equities to Dubai property (all the Arab Gulf currencies' fortunes are linked to the US dollar). Buying US dollars now for a trip or purchase in the future shows foresight. Many foreign exchange brokers are offering forward It's raining US dollars Investor EXPAT g £4.95/ 7.50/US$7.50 July/Aug 2007 Bringing advisers and investors together Investor EXPAT Tony Hetherington Our offshore financial investigator exposes a financial scam. Offshore savings The crème de la crème of offshore savings rates and accounts. Love, marriage and divorce Why location really does matter when it comes to an international couple untying a marital knot. Healthcare insurance Knowing your bottom line in benefits and what must be tucked away in your insurance policy. Hedge funds New Star explain how these funds work for private investors. Regulars 10 Offshore funds 12 Offshore savings accounts 21 Property investment 22 Offshore mortgage market Next issue Private banking Isle of Man money providers Guide to offshore bonds European markets 6 14 16 24 5 www.expatinvestor.com For sterling-based investors and spenders, the weak US dollar presents a buying opportunity not seen for decades, as Hannah Beecham reports. For more information from our advertisers or about products featured in Expat Investor enter the Fast Facts number onto the Reader Reply Service coupon on page 20 or go to: expatinvestor.com www.expatinvestor.com "There are those that you know you should read, and then there's the magazine you will read." To register for Expat Investor digital edition, visit the website at www.expatinvestor.com Serving expats for more than 18 years companies, including BP and HSBC, which declare their dividends in US dollars, have seen any dividend increases offset by the current drop in exchange rate. Investors who are already committed to US$-denominated investments, such as stocks and funds, would be well-advised to hold on to them for the time being. If in doubt, seek advice from an independent professional, who will also take into account your ultimate spending currency (for many expats this will be sterling or the euro) and what impact reshaping an investment portfolio would have on your ultimate wealth goals. Back in 1992, when the dollar stood at $2 to the pound, a sharp drop followed when sterling was forced out of the European exchange rate mechanism. It took only a few months to see a 25% fall before the rate steadied to around $1.50. The average forecast for this summer of $1.97 comes from Consensus Economics. And this time next year, the general consensus suggests a rate of $1.91. contracts, which enable would-be spenders to lock into a favourable exchange rate, by-passing worries about where the rate will move in the future. Property purchasers, in particular, would be wise to shop around to fix a favourable forward exchange rate. At the same time, however, given the current difficulties in the American property market, professional advice should be sought on the property's capital gains potential before you buy. The US National Association of Realtors has forecast that nationally US house prices will fall by 0.7% this year. In Dubai, on the other hand, where the property market is experiencing a boom -- both in terms of capacity and international demand -- agents report a surge in interest. When there are US$2 to £1, a property priced at $250,000 would set a buyer back £128,000. Twelve months ago the buying price would have been £144,000. The downside to the weak dollar will be felt by many investors in UK companies, which reply upon the American market for a large part of their business. As the US dollar has fallen against sterling, so, too, have the companies' profits. Market analysts provide comfort by reminding that the American economy is strong. This should increase UK companies' sales figures, cancelling out the negative effects of exchange rates. Investors need to look at how the companies they are invested in relate to the US economy and currency. For example, those companies whose operation costs are made in US dollars, may well benefit because such dollar-denominated costs are paid for from a strong sterling. Equally, any UK company that is holding US dollar loans will benefit, as the cost of managing such a loan (on the back of sterling) will be cheaper. Stock analysts agree that among the large-cap sectors, pharmaceuticals, media, oil and gas and utilities are the most exposed to the current dollar weakness. General industrials, aerospace and industrial engineering are other sectors with dollar exposure. Several UK