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Aberdeen Asia-Pacific Income Fu Message Board

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  • d_kim_2000 d_kim_2000 Nov 22, 1999 12:25 PM Flag

    Commentary..high yield market

    Mr. Flipper_58,
    Could you please explain to me
    how the following factors affect the NAV of
    a. Rate of exchange (A$ vs US$).
    b. Direction of
    interest rates in Australia & in the U.S.
    c. Inflation
    rates in both countries.


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    • Looks like the name change is in force .One way to make the past get lost in the fog .

    • There are a number of folks that could answer
      probably better than I but here's an overview.

      NAV is effected by:
      1)exchange rate.....the fund
      owns Aussie bonds, etc...since we want $ in US dollars
      the fund must exchange the interest and and bond
      proceeds from the AUD the $US. The exchange rate goes up
      and if the AUD goes down relative to the
      $US then the portfolio, as valued in $US will go
      lower even though the Aussie value of them might have
      not changed.
      2)direction of rates....first as you
      may know if bonds yields go up the price of exisitng
      bonds will drop to compensate for that higher yield. If
      rates are climbing, bonds portfolio's values are
      dropping. Inflation drives interest rates up or
      Rates are climbing in both countries.
      Depending on
      the rate of increases relative to each other
      (Australia versus US) it can have an effect on the countries
      currency. If rates are HIGHER in Australia than the US
      chances are that investors will want to be invested in
      Australia pushing up the value of their currency.
      the countries balance of trade (Import versus export)
      deeply effects a counttries currency. If countries
      import more than they export, this means when exporters
      sell AUD's to exchange back into their own currency it
      forces the value down. We've been lucky in the US and
      many of our major creditors(Japan, China) have left
      their money here versus selling and converting back to
      their own currencies. It's difficult to see how long
      this will continue. Australia too, has been running
      record trade imbalances(deficits) putting pusher on
      their currencies.

      To get really complicated,
      Gov't policies must balance their own interest rates to
      attract foreign capital and also try to control inflation
      in their own country. In the US, the FED is lucky
      that so much of our trade deficit money stay
      here...most other countries are not so lucky and must lock
      step rates up with the US in order to keep their
      interest rates competitive enough.

      • 1 Reply to flipper_58
      • In a reply to d_kim_2000 on 11/22/1999, flipper
        stated "many of our major creditors (Japan, China) have
        left their money here versus selling & converting back
        to their own currencies".
        I don't believe that
        repatriation of a foreign currency is possible (on a net
        basis) versus the U.S. dollar. When a Japanese
        corporation that has earned U.S. dollars needs yen, they
        might sell the dollars to the Bank of Japan, or on the
        world currency market. Somewhere there has to be
        someone willing to trade yen for those dollars (even if
        that someone is the Japanese government running the
        yen printing press). The new holder of the dollars
        must then sell them to a new holder, or purchase U.S.
        treasury bonds, stocks, properties, or exports. Even if
        they buy some other countries export denominated in
        dollars (such as oil), someone ends up holding those
        dollars. I believe that most of the trade deficit dollars
        end up in U.S. treasuries keeping our interest rates
        down, and indirectly thereby, our stock market up. For
        the Bank of Japan to start dumping dollars for yen
        would drive the yen into the stratosphere, destroying
        the Japanese export market and economy. Hence, they
        hold the U.S. Treasury bonds. George Soros would call
        this a virtuous circle. This situation can only change
        when other countries are forced (by economic events)
        to develop their own domestic consumer markets and
        stop depending on trade surpluses with the U.S. Until
        then, they are trapped holding dollars.
        This only
        works for the U.S. since we print the worlds key
        trading currency. In the future, the Euro will be a
        competitor with the U.S. dollar, and Japan and China will
        accept mountains of Euro Bonds for their manufactured
        That is my analysis anyway. Can anyone see any flaws
        in it?

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