Global Stocks Are Looking Better Since The Dollar’s Fall

Global Stocks Are Looking Better Since The Dollar’s Fall
Jonathan Hobbs, CFA

over 1 year ago2 mins

Mentioned in story

International stock markets appear to be at an interesting turning point – particularly for a US investor. See, the US dollar had been strengthening for most of this year, and international stock markets had been weakening. But now, that looks to be changing. The still-strong dollar has lost a bit of its gusto since September, while those international stocks have begun to pack on more muscle. This may be a moment to use strong greenbacks to buy weakened stocks in foreign countries, with the potential to make money on rising stock prices and strengthening foreign currencies.

The chart shows the percentage of stock markets in the MSCI All Country World Index (ACWI) that are now trading above their 200-day moving averages – a common indicator for the overall long-term trend of an investment. When priced in US dollars (dark blue line), 23.4% of global stock markets are now in a long-term uptrend, according to the indicator. But when priced in their local currencies (orange line), that number goes up to 53.2%. In other words, if you strip out the effect the dollar has on international returns, more than half the world’s stock markets are now in a long-term upward trend. This shows underlying strength in international stocks.

Meanwhile, the US Dollar Index (light blue line), which tracks the greenback's value against a basket of other major currencies, had been in a steep upward trend for most of this year. That’s tapered off since late September – and it could taper further over time.

In October I wrote how the Bank of America Global Fund Manager Survey showed that institutional investors thought the US dollar was “by far” the most overcrowded trade. This month, they’re saying the same thing. If you agree and see the dollar falling further, you could consider buying a more global stock assortment with the iShares MSCI ACWI ETF (ticker: ACWI; expense ratio: 0.33%).

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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