Change in Global Reserve Currency?

[Corrupto]

Rather than derail Michael_00005's thread I thought I'd open a new one (viewtopic.php?t=12322)

I had a thought arise when I was watching Ray Dalio's YouTube video called "Principles for Dealing with the Changing World Order"
https://www.youtube.com/watch?v=xguam0TKMw8

How might a change in the global reserve currency impact your investment strategies?

I don't know enough at this stage to understand what one should do but assuming the Chinese Yuan is the up-and-coming reserve currency: Do you hedge against a declining dollar by investing in the Chinese bond market? Is there some kind of arbitrage to be gained by being "early" on this? Should we allocate a greater portion of our portfolios to Asia Pacific stocks? Does it even matter?

[jacob]

Before answering, I suggest pricing a foreign equity market in your own currency. For example, what does the S&P500 look like in EUR? What does footsie look like in dollars?

[Corrupto]

Before answering, I suggest pricing a foreign equity market in your own currency. For example, what does the S&P500 look like in EUR? What does footsie look like in dollars?

I suppose it's a question of foreign exchange risk - markets don't move per se, i.e value doesn't change, but price will move depending on the underlying (and relative) currency. For me, at this point, buying the S&P 500 in GBP is "cheaper" than buying in USD in pure numbers (and vice versa for buying FTSE in USD). Or am I missing something more fundamental?

So if USD declines relative to the CNY, then purchasing in CNY would be a winner. I suppose that's less useful for those who purchase in GBP or EUR because "the system" will re-balance in favour of the next best currency. I suppose my question is more related to how the underlying businesses listed on the S&P500 would continue to offer the same value if they operate in USD, and thus struggle to compete as effectively.

I should explore this more and maybe come back with better questions..!