The importance of currency protection

It always amazes Alpha when people invest overseas without currency protection. So many investors who bought unhedged international managed funds in the late '90s paid a heavy price; the rising Australian dollar dampened the gains from the global equities bull market after 2001.

Currency volatility could intensify this year, making a currency protection mechanism for portfolios even more important.

The Alpha POWER Shares – Asian Lion, portfolio and the dividends it generates are fully hedged against currency movements.

Alpha's view is the United States dollar will weaken over the next few months as the US Federal Reserve keeps cutting interest rates to prop up the ailing US economy.

And although the rising Australian dollar may slow, Alpha's research suggests it could hit parity with the greenback this year.

The widening gap between US and Australian interest rates (with the US Fed cutting rates there again), strong commodity prices and less aversion to riskier currencies such as the Australian dollar as markets settle, are powerful supports for our currency.

Some market commentators think the Greenback has bottomed – a call that is far too early, in Alpha's opinion.

A technical rebound is possible – and probably overdue – but sentiment towards the greenback is bearish and likely to stay that way for much of 2008.

Meanwhile, Alpha expects some pullback in the Euro after strong gains due to greenback weakness. The short-term outlook for Euro zone economies has deteriorated this year due to US weakness and the rising oil price weighing on economic growth.

As in the US, consumer confidence in Europe is declining due to rising inflation, especially in food prices and energy costs.

Alpha's view remains that the Asia Pacific offers by far the best returns in the next few years.