The death-defying dollar continues to fly at vertigo-inducing levels. So should investors be looking to move their money overseas - in the hope of bringing it back when the dollar falls?
No one knows how long the dollar will remain at its stratospheric heights. But the idea of betting on
currency moves has hit the cocktail party chatter circuit and is coming to a social event near you.
Tauranga-based financial planner Phillip Holland, of Harmer Parr, says Kiwis are becoming increasingly aware of currency matters and even mum and dad investors are asking if they should be taking advantage of the high dollar.
If it is for you, the simplest way to take advantage of high foreign currencies is to open a foreign currency bank account with your own bank, transfer your spare cash into the currency of choice - bringing it home at a profit when the dollar falls.
At Westpac, you can open call and term deposit accounts in several currencies including US, Canadian, Australian, HK and Singapore dollars, UK pounds, Swiss francs and euros.
But minimum opening balances aren't for those with just small change to invest. At the ASB, it is A$10,000, £5000 and US$10,000.
But it's unlikely that the dollar will fall this week or next and you may have to hold on.
Meanwhile, interest rates aren't that fancy - often failing to exceed 1.2 per cent a year for the euro and 4.2 per cent for the Aussie. Compare that with the 7.2 per cent you would get on a $2000 lump sum at Kiwibank's Online Call account and you might ask yourself some questions.
One advantage of accounts domiciled in New Zealand is that for tax purposes they are treated the same as kiwi dollar accounts.
Several companies specialise in foreign-exchange transactions outside the banks. They include companies such as HIFX, which provides a service for people needing to transfer money in and out of the country for purchases of houses or immigration/migration reasons.
Several forex trading companies also offer services to private investors wanting to take a punt. It should be pointed out that forex trading is not regulated in New Zealand, which means that there are fewer checks and balances on companies offering such a service compared with other investments. Some companies such as HIFX, however, may adhere to Australian rules.
The next easiest way to capitalise on the currency is to buy units in collective funds that invest in overseas companies. These include products marketed by fund management companies such as Tower Managed Funds and BT Funds Management, available via financial planners, and exchange-traded funds that can be bought on the New Zealand Stock Exchange.
The NZX has four exchange-traded funds that allow you to invest in a small slice of Australasia's top companies. Three are New Zealand-based and one of them, the Mozy Fund, invests in Australian mid cap shares.
In January, 66 per cent of the money going into the four funds was directed at the Mozy fund. "That highlights [the fact that] people are aware that the dollar is high," says Yvonne Davie, sales and development manager at NZX.
Investors looking to buy overseas investments on the NZX aren't just limited to the exchange's own funds. There are several other collective investments such as WINZ (AMP Investments World Index Fund), OZY (Australian 20 Leaders index fund), the Foreign & Colonial Investment Trust, a London-based fund, and a number of foreign-based individual equities which can be bought here, such as the ANZ Bank.
Holland, meanwhile, prefers to give his clients a mix of overseas investments and currency opportunities using "wrap accounts", which are umbrellas under which a number of investments are held and switched.
As well as Australian and international funds, a number of Holland's more "professional" investors have been "parking money" in foreign currency deposits within their wrap account.
In addition, many are choosing to invest in Australian and other fixed- interest debentures as well.
How long such investors will have to wait for their gains is anyone's guess. Despite jitters on the currency markets, pundits are predicting that it could keep exporters, who are hurting, taking paracetamol for months.
BNZ chief economist Tony Alexander is predicting a rapid fall in the currency, but not until the end of the year or even 2007.
"There is no way of forecasting when exchange rates are going to move," says Alexander.
What's more, actions by the Reserve Bank or foreign investors looking to take advantage of high interest rates could keep the dollar trading at a premium for longer than predicted.
But when the dollar does drop against other main currencies, then it's likely to be a vertical drop. "The kiwi dollar tends to go up an escalator and down the lift shaft," says Alexander.
At 68USc, the dollar is far higher than its average for the period since 1985 of 58USc, says Alexander. However, it's unlikely to fall as low as 40USc as it did in 2000 after a three-year decline.
Not everyone is gung-ho about jumping on the currency bandwagon. Jeff Matthews, senior financial adviser at Spicers Wealth Management, doesn't agree with putting clients' money overseas simply on the basis of the currency. Having said that, about 70 per cent of Spicers' clients' portfolios are invested overseas - a figure in line with the New Zealand Super fund.
"Investing overseas isn't right for everyone," says Matthews. "If someone is 74 and looking for income opportunities, they shouldn't try a short-term play to make a couple of bucks. It has to be part of a broader strategy." However, he says it makes a lot of sense not to have all your eggs in one country basket.
Then there's the tax man. Duncan Fraser, tax manager at the Institute of Chartered Accountants, says that if you're taking out foreign investments or overseas-domiciled foreign currency accounts with the intention of making a gain on the currency then your profits are taxable.
www.smartshares.nzx.com
www.hifx.co.nz
www.goforex.net
www.bnz.co.nz
The death-defying dollar continues to fly at vertigo-inducing levels. So should investors be looking to move their money overseas - in the hope of bringing it back when the dollar falls?
No one knows how long the dollar will remain at its stratospheric heights. But the idea of betting on
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