The Daily Telegraph - Your Money - - YOUR MONEY - Richard Dyson

Bet on the euro’s collapse, says the likely US en­voy to Europe. Should you?

In an un­usu­ally can­did in­ter­view, the econ­o­mist and aca­demic Ted Mal­loch this week de­liv­ered a with­er­ing at­tack on the fu­ture of the euro. He branded it “a cur­rency that is not only in demise but that has a real prob­lem, and could in fact collapse in the com­ing year or year and a half ”.

His re­marks, made to the BBC, were all the more ar­rest­ing be­cause he may be­come Don­ald Trump’s new am­bas­sador to. . . Europe.

For in­vestors it’s a fur­ther re­minder that cur­rency has be­come a ma­jor vari­able that in the past we gen­er­ally over­looked. The plunge in the pound last year has been man­i­fest in all of our Isas, pen­sions and other in­vest­ments, mainly in the ap­par­ently pos­i­tive boost of ris­ing share val­ues. This oc­curred as our big, multi­na­tional share­hold­ings were rated more highly in ster­ling thanks to their dol­lar earn­ings.

As we’ve said here be­fore, once the over­seas, dol­lar-earn­ing giants are re­moved from the FTSE 100 in­dex of blue chip stocks, the rally of re­cent months is a more limp af­fair. You can also see this where stocks are listed in sev­eral mar­kets: BP’s dol­lar-de­nom­i­nated shares in New York are up by 20pc over the past 12 months. Their ster­ling­de­nom­i­nated shares in Lon­don have gained 39pc.

All this is hap­pen­ing at a time when our taste as in­vestors for over­seas hold­ings has never been greater.

What would a slump in the eu­romean?

Many pro­fes­sional fund man­agers – the peo­ple run­ning our Isas and pen­sions and mak­ing de­ci­sions about where to in­vest our cash – are al­ready fac­tor­ing in some fairly gloomy out­looks for the euro.

At least two ma­jor Euro­pean par­ties, France’s Front Na­tional, led by Marine le Pen, right, and Italy’s Five Star Move­ment, are call­ing for a ref­er­en­dum on con­tin­ued mem­ber­ship of the cur­rency club. Elec­tions are loom­ing in France, Ger­many and Italy.

Port­fo­lio man­agers are re­spond­ing by do­ing what their coun­ter­part man­agers did in Bri­tain: mov­ing their fo­cus to­wards Euro­pean-quoted com­pa­nies with dol­lar earn­ings.

Rob Burge­man, a di­rec­tor at wealth man­ager Brewin Dol­phin, said: “We’ve seen man­agers shift to­wards busi­nesses with over­seas earn­ings as a way to pro­tect in­vestors from a weak­en­ing ster­ling, and some­thing sim­i­lar is hap­pen­ing in Europe with the euro. If busi­nesses there de­rive earn­ings in dol­lars, and the euro falls out of bed against the dol­lar, you would ex­pect those shares to rise when val­ued in eu­ros.”

Other man­agers are pro­tect­ing against the pos­si­bil­ity of the euro fall­ing in an­other way, Mr Burge­man said, by mak­ing in­creas­ing use of “hedges”. This is where in­stru­ments are used to in­sure the port­fo­lio against cur­rency move­ments. They are be­com­ing more com­mon.

Many main­stream funds in­vest­ing in over­seas stocks now have “hedged” units along­side the reg­u­lar ones. You ef­fec­tively buy the same

Marine Le Pen is one of sev­eral Euro­pean politi­cians call­ing for a ref­er­en­dum on euro mem­ber­ship

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