I have thought more about the con or negative of having shares in foreign currency.
Because of the exchange rate which can be volatile in itself, to be profitable my share have to have its share price going up
and the exchange rate remains constant, or in the case of US$ and AU$ to have US$ appreciated against AU$. If the share price goes up and US$ valuation against AU$ also goes up, then the profit will be much bigger. But if the share price goes down and US$ valuation against AU$ also goes down, then the loss will be much bigger.
If I live in the US and use US$ (no need to convert to a different currency) then I only have to worry about the share price. But living in Australia and use AU$, if the merger goes ahead, then I have to worry about the share price
and the exchange rate.
It is more complicated to say the least.
But what if there is more than a good chance for the US$ to appreciate in value against AU$? So I checked what JP Morgan says about the strength of US$.
It says:
"After a historic bull run last year, the nominal broad dollar index fell almost 7% between November 2022 and January 2023. Such weakness reflects a mean reversion from the dollar’s outsized gains in 2022.
“The
confluence of factors that had proved so supportive of the dollar earlier in 2022 has since
inverted.
“We still hold longer-term reservations about the broader trajectory of the global cycle, which we think should be generally dollar-positive, but the interim period of both positive global surprises and less U.S. exceptionalism seems to point toward a period at the trough of the dollar smile, whose duration is uncertain,” said Chandan.
“In our view, the top trading themes for 2023 are regional growth rotation away from the U.S., at least temporarily toward China, and greater differentiation with high beta FX.” (my emphasis)
https://www.jpmorgan.com/insights/global-research/currencies/currency-volatility-dollar-strength#:~:text=After%20a%20historic%20bull%20run,in%202022%20has%20since%20inverted.
Not positive!
Now, added to that with the warming up of the relationship between Australia and China. The more goods Australia can export to China because of the removal of tarriff, the stronger AU$ value against US$.
That is not good to the value of my share when it is converted to AU$.
At least this is an added risk which I have to take if I agree to the merger.
So I will vote NO or AGAINST to the merger.
