AUD trade & some thoughts

I'm really glad that the price for Starhub has traded rangebound, just as I had predicted (and hoped!).

Just also wanted to share another area of my investments, that of foreign exchange. I never had luck with foreign exchange; I had 1000 HKD that I kept from my previous trip exchanged at a rate of 1S$:4.5HKD and am sitting on paper losses today.

However around the middle of this year, I was very bullish on the Australian dollar (AUD) as I was confident the Reserve Bank of Australia would raise rates. I bought in at about 1AUD:1.24S$, and interest was pretty decent at an average of 4% p.a.

Unfortunately just a few weeks after I made this trade, the exchange rate fell to 1AUD:1.18S$, and I panicked. I had contemplated buying more to get an average rate of say 1.21 but I did not (which of course I regret on hindsight). In fact I had almost liquidated the holdings at a loss.

Thankfully for me, I held on and only just squared the trade at a rate of 1AUD:1.28S$. Overall the trade presented me with returns of 6% (3.5% on currency gain; 2.5% on interest) or almost 12% on an annualised basis! Nice gains of a few hundred dollars and I'm pleased =) Of course if it were a few thousand dollars it would have been nice, but let's not be greedy.


Analysis on AUD
Overall, I'm still confident of the AUD; and I was proved right as the AUD strengthened to the point where it has now breached parity with the USD.

However what I had considered but downplayed is the relativity of the exchange rate. Sure enough, the AUD strengthened against the USD, but so did SGD (my home and base currency). I had thought the SGD would not appreciate that much, nonetheless as Singapore uses its exchange rate as its monetary policy tool, the MAS decided to increase the slope of the NEER band to rein in import-led inflation. Therefore, for me to have made better returns on the trade, it means the AUD has to rise much faster than the SGD. While it had for the past few months, I wasn't sure if it would continue and I decided that it's time to take profit.

I made the trade in the form of a fixed deposit, so am glad to have made profits overall. The returns are calculated net of the bank's bid-ask spread. Of course if the rate of relative increase in the AUD had been much lower, I could jolly well have been hit with a loss. Overall, I felt that this investment was too risky and decided to call it a day.

But I still like the AUD because it has high interest rates - and for some reason AUD seems to go against interest rate and purchasing power parity which makes it seem like a free lunch somewhat - and it is a way for me to get exposure to the booming commodities sector. So if exchange rates favor the odds again, I'll be back into the trade.


Thoughts on Portfolio

Made a few trades this week and had wanted to do more stock analysis, but haven't had the time, so will do so later. But recently I've been reading up more and trying to learn more so I've had many investment ideas.

On my portfolio, I may not be able to hit net worth of $288K by end of this year, which I had initially thought was possible. I realised quite a bit of losses on my fund investments (and Fundsupermart platform fees did not help!). But I always remind myself that I started small (my average income for the first three years of work was under $50K p.a., including 13th month AWS) and I spend around half of it or more as my annual insurance premiums alone constitute $4K every year. If anyone remembers my earlier post - done after my financial planning in mid-2008, my target net worth at end-2010 is $200K. This has now been surpassed thanks to a strong recovery in Asia and to increases in employment income. I also spend my spare time (and some nights) running a small side business. So I am now ahead of the original schedule by just under 2 years, and with inflation rising at 3% p.a. I'd much rather be a millionaire at a younger age of 30 or 35 instead of the original 38. This hopefully would place me much ahead of my peers and allow me to choose the jobs that I want to do - no, I won't stop but I want a choice - and to roam the world as and when I please while I'm still healthy. Perhaps it is now time to relook at the cash flows and financial plan all over again :)