Investors should treat currency as an important determinant of investment outcomes, says Urs Brutsch, Singapore-based regional head, ABN Amro Private Banking. 'Of course, currency movements are hard to predict,' he says. 'In client portfolios, being in the right currency is the most important decision you have to make. Whether you are investing in Hong Kong or Swiss equity, the correlation with equity markets is fairly high [i.e., they follow each other up and down]. 'Studies on what contributes to performance in a portfolio have shown that the currency influence was in many cases the most important. 'Of course, the asset class is important, whether you invest in equities, fixed interest or whatever. But it is equally important to be in the right currency.' Mr Brutsch cites as an example the euro, which has appreciated about 18 per cent in recent months. 'It has strengthened a lot. So if you are in, say, US stocks, and they rise by 10 per cent but you are down in the currency by 18 per cent, you are minus eight, basically.' He says ABN Amro has been advising high net-worth clients to diversify in the currencies they hold their investments. 'Giving this kind of advice has become easier after 1997 [the Asian financial crisis], because people now know it is important to be in different currencies. In Thailand, for example, they thought the Thai baht was good enough, with its ties to the US and all that. Then suddenly, in the Asian financial crisis, they were 50 to 60 per cent down. 'We constantly preach to clients to diversify and not do everything in US dollars. The euro strength, which in fact I think is a dollar weakness, gives us some vindication.' ABN Amro advises clients to hedge some of their currency exposure, either using options or forward contracts. Daniel Truchi, chief executive for the Asia-Pacific at SG Private Banking, describes currency advice as a basic service expected of private bankers. 'No matter what the underlying performance, if there is a weak currency, there is a loss when you bring it back to your base, or at least a lower profit. So the currency is very key in the investment, together with, of course, the performance and the expected volatility.' He says the risk/return appetite of clients varies, depending on the yield of the currency, and also on its strength. Typically, currencies that are strong, and are expected to remain strong, will have low interest rates in their issuing countries' government bonds, while risky currencies likely to weaken will see higher rates on their national bonds. Look again at the euro as an example of how difficult it is to predict currency movements. The euro, which slumped after it was issued, recently has surged strongly against the US dollar. Mr Truchi says SG Private Banking has in the past 12 to 18 months advised many of its clients to move into euro-denominated investments. 'They [investments denominated in euros] provide a higher yield, and also a strong appreciation of the currency against the US dollar. We have done a lot of investment in euro these past months.' Another private banker says most Hong Kong clients consider the US dollar as their base currency, the one in which they ultimately measure their profit or loss from an investment, because of the peg to the local currency. 'A typical Hong Kong private banking client holds most of their assets - 60 to 80 per cent - in US dollars,' she says. 'They are also used to using other currencies, partly because of the waves of migration to places like Canada and Australia in recent years. Of course, there is also a lot of Hong Kong dollar ownership in property, and stocks in particular. The strong base is in US dollars.' Maggie Tsui, head of Advisory Services Hong Kong and North Asia for BNP Paribas Private Bank, says her bank has been advising a switch into euro-denominated investments for some time ahead of the recent appreciation in the currency. 'We advised clients to switch part of their fixed-income assets into Euroland from the start of this year, because we saw US interest rates were at their lowest in a long time. We believed the opportunity was coming from the euro zone, which we thought would cut interest rates significantly this year because of its low growth. 'So, starting this year, we advised clients to go into the euro currency fixed-income market. Now they have benefited from both the capital gain of the bond and the currency gain. Clients who followed our advice at the beginning of the year to buy euro-denominated bonds are happy.'