How Do Stocks Hedge Against Currency Risk?

It's no secret that many Expat's in Asia need some form of currency hedging

. Whether they get paid in a different currency or plan on living in a country with a different currency in the future, currency can pose a risk to your future plans. The good news is, in today's global economy, global companies can hedge your position for you. A quick glance at the earnings call transcript of companies like McDonald's (MCD), Nestle, Proctor & Gamble (PG), Unilever (UL), Coca-Cola (KO) and you'll see comments like this:

"Diluted earnings per share were $1.00, up 15% (9% in constant currencies) including a $0.05 per share currency benefit."

That's because earnings from around the globe are earned in different currencies. Then, when translated into earnings in the base currency, reflect any currency strength or weakness. Take a look at the chart below of McDonald's (MCD). From 2005-2008, the USD lost value against other currency's like the RMB and the EUR. The red represents growth if the currencies held constant. In some years, the growth is almost double.

McDonald's (MCD) Quarterly System Wide Sales Growth (Year over Year)

.

McDonald's is a stock based in USD. The dollar declined vs. other currencies during this time period by about -18%. You would think this would have diluted your account value by 18%.

.

.

However, McDonald's (MCD) stock performance, with the aid of currency profits from a declining USD, boosted its overall profits in USD and the stock rose over 100% in the same time period.

.

. It's important to remember these 3 important currency hedging strategies.

Buy Stocks with International Exposure like McDonald's (MCD), currently now trading above $70.

Buy Direct Foreign Companies in the currency you wish to use in the future, like China Mobile Ltd. (CHL) if you wanted RMB exposure.

Buy Hard Assets like Oil (USO), Gold (GLD), Silver (SLV), and even property stocks.

Disclosure: Author Kevin Monaghan, Senior Account Executive at Elite Investment Group currently owns SLV, CHL, MCD.

How Do Stocks Hedge Against Currency Risk?

By: Kevin Monaghan

POST COMMENT

A Party For Me And You Mma Workout For Strength And Conditioning Stock Update On Activision, Mslp And Rscr - Pennytobuck.com Some facts about stainless steel pipes and 4130 tubing for you Customize Your Gridlines And Borders In Excel 2007 The differences between halogen and LED bulbs Stock Update On Crwe, Pactiv Corp. ( Ptv ) Merger And Pacific Ethanol ( Peix ) Financials - Pennytob The Stock Indexes Futures Contracts - S&p 500 Index The Definition And Uses Of Essential Oils Movement And Physiology In Pilates The Difference Between Hard Wood Flooring And Marble Flooring The Pilates B Line And The Core Power Outages -- Prepare For Brownouts And Blackouts