Why UK Investors Should Care About the Euro

From the strength of Germany to the weakness of Greece, a study of the euro quickly becomes a multifaceted story

Matthias Palowski 9 July, 2018 | 12:20PM

Understanding the ‘fair value’ for any currency is complex. With no cashflows to be discounted, one needs to look beyond traditional valuation techniques as a means of understanding if an opportunity exists. Then we introduce the unique attributes of the euro, where the difficulties are compounded as it has only existed since 1999 and includes a diverse range of constituent countries. From the strength of Germany to the weakness of Greece, a study of the euro quickly becomes a multifaceted story.

This is important to global investors because foreign investments are influenced by two key variables:

  • The return/risk of the asset we buy
  • The return/risk of the currency this asset is denominated in

Therefore, if an investor were to ignore currency research, we would ignore one of the two main factors that determine return and risk. That is why currency analysis is important to us and why every investor should deepen their understanding of currency implications.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Matthias Palowski  is a Senior Investment Analyst for Morningstar Investment Management

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