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Expat Investor : September 2008
FIRST PERSON The ‘credit crunch’, the investment markets and the expatriate Gavin Fraser, Global Sales Director, Ashburton, asks whether the credit crunch and its ramifications for the markets has affected the issues that expatriates must consider and how should they react to talk of financial crisis at home. In theory, the overriding answer is that the British expatriate should be well insulated from the troubles back home in the United Kingdom and elsewhere. However, what tends to happen is that when a crisis unfolds and panic hits the markets, investors become so concerned that they decide to sit on their hands to see what happens. If they take that approach whilst living or working abroad, they are likely to miss out on investment opportunities. What has been happening in the markets since the turn of the year? We have seen equity prices fall sharply and then rebound based partly on the central banks’ intervention in the US and latterly in the UK, where they have ploughed money into the markets to stimulate liquidity. These moves have given some comfort to investors. Our investment team believe that we are starting to see the first signs of recovery. Equity markets generally bottomed out in mid- 24 EXPAT INVESTOR ? January and in a second correction in mid-March. Sentiment fell to extreme levels of pessimism in March; these are usually associated with market bottoms. This combined with improving market breadth and participation all adds weight to their belief that we should see some sort of bounce in the markets. However, it is right to remain cautious since technically the outlook for equities is not clear cut. Ashburton, for example, is still reticent about committing too aggressively to these markets. Currencies The current crisis has created a volatile market for currencies and in these circumstances expatriates have to be careful. Those based in Europe who are paid in either US dollars or sterling are suffering through the exchange rate because of the strong performance of the euro. Even if your salary is paid in euros, you may be letting your property at home and receiving income from it in sterling. If you September 2008 convert the sterling payments into euros, the value of the sterling payment will have decreased substantially in the last 12 months. We noted the importance of currencies in our first article and the current volatility has certainly highlighted the importance of careful research in respect of currencies. The solution is to look for mechanisms that neutralise the effects of currency fluctuation. Some funds will do this. It might be prudent to turn to investment managers with a track record who can offer advice on currency movement and will try to structure an individual’s investments in a way that might neutralise the effect of currency conversions. Property Property is another important early consideration when moving abroad and in our first article we considered the options for the expatriate who may move to a new location whilst retaining a property expatinvestor.com at home. For many this is the first time that property is a genuine investment opportunity. Some investors may now be concerned by the impact of the ‘credit crunch’ on the property market back home. They may instead turn their attention to property investment opportunities abroad. Property has been a very popular asset class for Gulf nationals for instance. There has been a tendency for the resident population to invest in the local market because prices in the more traditional markets such as London and Paris have been so high. Those living in the Gulf cannot fail to be aware of the enormous commercial and residential property boom that is underway all around them, and therefore investment in bricks and mortar in the region could be considered. But the expatriate needs to consider his financial circumstances and understand that purchasing a property will tie up surplus funds for a number of years. Professional advice It is clear from our review of the investment market that decisions about what to do with hard earned income are never easy. However, it is my view that no investment should be undertaken without professional advice. You need to understand your investment options from a legal, tax and financial perspective, and that may mean talking to more than one finance professional in the region. The effect of the credit crunch has exacerbated the volatility in the markets but it has not diminished the opportunities, and it should not prove a barrier to prudent investment going forward. The solution is to aim for a balanced approach and this can be best achieved through a diversified portfolio of assets which, if managed also for their currency risk, should meet most investors’ objectives. Fast Facts 77470
July August 2008