A weak dollar would Favour U.S. or Emerging Markets?
With a falling dollar, most people would expect U.S. stocks to rise but underperform their international peers.
Recent study reveals that indeed in the past 2 dollar bear crisis that took place in 1970s and 2000s, Emerging Markets Equity achieved the best return as shown:
But if I were to be right, after the global financial crisis in 2009, dollar also fallen a lot. The chart below illustrates the top performer was again Emerging Market Equities in 2009 with 79% return and it delivered 19.2% in 2010 but negative 18.2% in 2011. On the other hand, S&P was the top performer in 2013, 2014 and 2015 as shown:
Will this time be different from the 1970s and 2000s or it will be a repeat of 2009s?
Personally, I shared the same view as Chao Ma, global portfolio and investment strategist at Wells Fargo Investment Institute (WFII) that while non-U.S. developed-market equities and emerging markets have tended to outperform during past periods of dollar weakness, that was probably due in part “to a more favorable international economic outlook and more preferential overseas investment opportunities—a trend that is less evident today,” he said.
WFII favors U.S. over international equities—“along with higher-quality asset classes and sectors such as U.S. large-cap equities and information technology—to potentially capitalize on market leadership and to ‘hedge’ against potential uncertainties in the evolving pandemic and the coming elections,” Ma wrote.
Reference:
- 金十数据, 2020-08-03, 《美元创10年最高单月跌幅，疯狂的资本都流向了哪里？》
- MarketWatch, 2020-08-05, “What stock-market history says about a falling dollar”
