Yen powerful diversifier

Holding Japanese yen could still be a powerful portfolio diversification tool, despite its current depreciation, according to Mouhammed Choukeir, CIO of Kleinwort Benson.

Yen powerful diversifier


In a recent blog, the CIO suggested that while being long yen is a contrarian view, evidence suggests that this does serve the disciplined investor over time.

He also points out that the currency has shown good defensive characteristics for portfolios similar to the US dollar. Yen appreciated two-thirds of the time in the 33 quarters during which equities were down since 1990.

However, Choukeir suggests that despite the recent depreciation in the yen, monetary policy has yet to be fully actioned and the new prime minister may yet be unable to deliver his promises, calling time to the rapid falls in the Japanese currency. Further, it is likely that Japan’s trade partners will fight back with their own quantitative easing, further fuelling the currency war.

He said: “In contrast to the war in currency markets, the recent drop in equity market volatility has created peace in equity markets. Yet, this peace is fragile. We recognise that there is a risk of a spike in volatility, which is typically followed by a correction. Therefore, while we have been adding equity risk to portfolios, currencies present a powerful – and currently attractively priced – tool to diversify portfolio risk.

“Such an approach requires patience. This is especially important in times of war. Tolstoy reminds us of this in War and Peace: “The strongest of all warriors are these two — Time and Patience.”




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