Chapter Eight

Timing Market Factors: Currencies

Why a Crisis Can Be the Best Time to Buy

Market timing, on a Consistent basis, successfully, is impossible. However there are conditions when it is the best time to buy and the best time to sell. The guide to such conditions can be found in company valuations. But those valuations are impacted by currency changes. Contagion from the financial crisis that swept through the Asian markets like wildfire helped to strike panic in the hearts of even the most stalwart and savvy investors. On the face of it, that’s not too hard to understand. After all, when a foreign currency declines in value, any stock that you own denominated in that currency is going to decline in value relative to the strength of one of the global reserve currencies, such as the U.S. Dollar, unless there is a local currency price increase that compensates for the local currency’s devaluation.

So what to do during a currency crisis? Well, the first thing to realize is that despite everyone ranting about destitution and impoverishment, a devalued currency is not necessarily a catastrophe for any economy. In fact, it can be the engine for the next cycle of growth. There are winners and losers in such conditions. A cheap currency can mean that exporters will find it easier to export their goods, while importers will have difficulty.

Understanding Foreign Exchange

When examining foreign exchange (forex) and the expected value of a currency relative to other currencies, ...

Get The Little Book of Emerging Markets: How to Make Money in the World's Fastest Growing Markets now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.