Another example of how do you apply your view – Brexit
Ok, people around the world knew UK exit Euro now, so what?
GBP drop significantly, so do UK, Euro and UK stock market
It is very important to develop your view about the market trend but most importantly how do you apply your view.
If you don’t invest in the financial market, it pretty much has nothing to do with you. However, if you do, here are a couple of different ways you can apply your view:
1. You can convert your local currency to buy GBP and wait for GBP bounce back against your local currency.
Analysis: yes, you can do it as long as you know your own local currency movement with GBP and also take into the consideration of exchange rate cost.
2. Trade FX market. For example, the strongest currency against GBP will be USD. You believe GBP is oversold against USD. So you want to sell USDGBP at spot rate with leverage.
Analysis: Yes, leverage is double-edge sword. You win, you win big, you loss, you go home very quickly. Do you have knowledge and experience to deal with leverage in FX spot market?
3. Trade FX option market. You can buy USDGBP put option if you believe GBP will go up against USD due to GBP is oversold (undervalued).
Analysis: Do you know what is call, put option and most important what is the “Volatility mean in the option market. Do you know you could potentially loss the money if volatility is diminished even market move into your direction?
4. You can convert your local currency and buy gold if you think the market will be extremely volatile and you think people need gold to hedge their asset.
Analysis: gold is good tool to hedge when market is extremely volatile but gold is not producing any true value and not mention to no interest earned at all. So when you buy gold, you are not investor but most likely become trader. If you simply want to hedge your stock market, you actually should consider bond not gold. Gold is commodity with price quite highly manipulated by institution trader.
5. You can convert your local currency to GBP and buy UK stock market index if you believe their stock market is oversold.
Analysis: that is good way to apply my view if you do understand the fundamental analysis of UK stock market and also take into consideration of their cash dividend yield.
6. You can convert your local currency to USD and buy UK stock market ETF (VGK) if you believe their stock market is oversold
Analysis: It could be even better way to apply your view if you believe USD against GBP will continue rise and VGK pay you cash dividend nearly 3% per year. But do you know the correlation of US and UK stock market?
7. You can convert your local currency to USD and buy US stock market if you believe their stock market is oversold.
Analysis: likewise, you need to know the USD against your local currency and factor into the potential movement in your desired investment timeframe. Also, you need to consider what is upside potential for the stock you invest.
8. Convert your local currency to GBP and buy UK property.
Analysis: I think it is great idea for US coz it is 10% cheaper compared with 3 days ago. The question is do you have such large fund and local knowledge to buy the right property for future capital growth and decent cash flow property. What is your property strategy? Buy and hope?
In fact, I personally reckon general public won’t be to implement above 8 strategies due to lack of skill, knowledge and experience.
So here is another option for you:
9. Just go for holiday in UK.
Book the holiday to UK in recent weeks and take advantage of depreciation of GBP. Create the great memory and help UK economy.
Good luck for investing.
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