Seven Investment Management is developing an investment vehicle to buy into emerging currencies to take advantage of a vulnerable British pound.
7IM is working with Goldman Sachs on a product that facilitates tactical calls on foreign exchange, with greater risk control.
7IM director Justin Urquhart Stewart says: “We continue to see Sterling as vulnerable, as it is arguably overvalued on several measures, the current account deficit remains wide and the fiscal position is not encouraging.”
He says it is likely further interest rate cuts will reduce the yield appeal that has helped maintain Sterling’s strength in the last couple of years.
It will focus on developing world currencies, mainly the Bric regions, and expects broad appreciation of those currencies in 2008 and beyond, against the British pound.
Urquhart Stewart says: “Brazil enjoys a strong balance of payments and likely higher interest rates in response to a growing inflation threat, Russia looks somewhat similar, with strong balance of payments thanks to oil exports, substantial capital inflows and perceived greater willingness of the central bank to allow Ruble appreciation to help control inflation.
“India is less clear-cut, with a weaker balance of payments and less need for central bank tightening, but strong FDI looks supportive, China continues to enjoy a huge trade surplus and looks set to allow both higher interest rates and faster Yuan appreciation in response to growing inflation pressures.”