Foreign stocks: the currency risk you need to know

2026-07-07 · By Lubin Danilo, founder of Lubin Investment

A stock listed in Norwegian krone, Japanese yen, or Indian rupee exposes a foreign investor to an additional risk, independent of the company's performance: the exchange rate movement between that currency and their own. Even an excellent stock can become a bad investment if the local currency collapses.

Key takeaways

A stock listed in foreign currency exposes the investor to two overlapping performances: the company's, and the exchange rate's.
An excellent company can become a bad investment in your home currency if the local currency depreciates sharply against it.
I've already covered several companies listed in local currency (Kongsberg in Norwegian krone, Advantest in yen, Tata Consultancy Services in rupees) without ever addressing this risk on its own until now.
Valuation data from some foreign markets can also show conversion inconsistencies, one more reason to be cautious with local-currency figures.

The risk quality numbers don't show

My ten financial criteria measure a company's quality in its local reporting currency: a net margin, cash growth, return on capital, all calculated in krone, yen, or rupees. But if I buy that stock from abroad, my real return also depends on how the exchange rate between that currency and mine evolves, a factor entirely independent of the company's own quality.

A concrete example: Kongsberg in Norwegian krone

I analyzed Kongsberg Gruppen, a Norwegian defense group listed in Norwegian krone (NOK). Even if the company keeps performing well operationally, an investor buying this stock from the US or the eurozone will suffer a currency loss if the krone depreciates sharply against the dollar or euro, regardless of the company's results. Conversely, a stronger krone would amplify the gain.

The trap of poorly converted data

Beyond currency risk itself, I've repeatedly noticed that market cap or target price data returned by my tool for certain foreign markets (Norway, Japan, India) showed likely unit conversion inconsistencies between local currency and the dollar used by default in some fields. That's one more reason to stay cautious with foreign-currency figures, and to favor ratios (like P/FCF) that remain valid regardless of currency, over absolute amounts that can be poorly converted.

How I handle this risk in my analysis

I don't try to predict currency movements, a notoriously difficult exercise even for professionals. I'd rather explicitly flag this risk when it exists, never citing a foreign-currency valuation figure if I have the slightest doubt about its reliability, as I did for Kongsberg Gruppen and Tata Consultancy Services. A company's fundamental quality remains the main criterion, but currency risk needs to be identified as an additional factor, not ignored.

Not a reason to avoid foreign stocks

Currency risk isn't a reason to systematically rule out quality foreign stocks, some of which (Advantest, Hong Kong Exchanges and Clearing, ASML) rank among the strongest profiles in my screener. It's a factor to know and consciously accept, not an automatic disqualifier.

What I take away from this

Investing in a foreign stock means investing in two things at once: the company and its currency. The two performances can move in opposite directions. Understanding this duality, and staying cautious with local-currency data that can sometimes be poorly converted, is what lets me analyze companies worldwide without being caught off guard by a factor my financial criteria don't directly measure.

FAQ

What is currency risk for an investor?

The risk that exchange rate movement between a stock's local currency and the investor's own affects real returns, independently of the company's results.

Can an excellent foreign company be a bad investment?

Yes, if the local currency depreciates sharply against the investor's own, even excellent operating performance can be wiped out by the currency loss.

Why should some foreign-currency data be treated with caution?

Some markets (Norway, Japan, India) have shown likely unit conversion inconsistencies in data returned by my tool, a reason to favor ratios over absolute amounts.

Should you avoid foreign stocks because of currency risk?

No, it's not an automatic disqualifier: several of the strongest profiles in my screener (Advantest, HKEX, ASML) are quality foreign stocks.

How do you manage currency risk in practice?

I don't try to predict currency movements, but I explicitly flag this risk and stay cautious with local-currency figures whose reliability seems uncertain.

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).