- The recovery over the past 12 months has been led by a range of currencies – AUD gained significant ground against JPY (+6.57% yoy), HKD (+3.12%), USD (+2.83%), INR (+2.04%), EUR (+2.04%) and CHF (+2.00%).
- Against this backdrop, unhedged investors faced significant level of headwinds across most major asset classes. Over the longer period of 3 and 5 years the currency effect has been positive reflecting the AUD index trading range.
- Over the year, currency effect for Global RIETs (DM) was -1.95% and -1.83% for Global Equity (DM) for a fully unhedged AUD investor. The currency effect for global bond investor was -1.72% on a fully unhedged basis.
- With the recovery in AUD since March 2020 lows, the key question is whether investors need to reduce, increase or stay at 50/50 type benchmark on hedging.
- AUD appears overvalued against GBP with an expected return of -5.43% to -7.55%, JPY the expected return range is -2.26% to -3.06% and against CHF the expected return range is -1.36% to -2.57%.
- Our expected MSCI DM equity weighted return expectation from AUD ranges from -1.42% to -2.19% over 6 and 12-month, respectively.
- The range of expected return suggest that a neutral to unhedged position may be warranted depending on the FX risk appetite of investors.
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