The Dollar and Non-US Stocks: Mean Reversion?

Written by: Global Thought Leadership | August 30, 2018

Source: Bloomberg, August 30, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.


  • All eyes have been on the U.S. dollar this year; since its mid-February low, the buck has risen 7.5% to its August 15th high versus the Bloomberg Dollar Spot Index, a commonly used basket of key world currencies.
  • For U.S investors, that rise has taken a toll on the performance of non-U.S. stocks in general. Year to date, the MSCI ex US Index experienced a negative return of 4.3%.
  • But the economic backdrops of many non-U.S. stock markets – with some notable emerging market exceptions – have continued to improve.
  • Europe is a prime example.  The European Central Bank (ECB) has been continuing its ultra-accommodative monetary policy for years, since its own crisis in 2011-12, and has committed to keep it in place for at least another year. 
  • As a result, interest rates are at record lows, and in many cases, they’re in fact negative in nominal, rather than inflation-adjusted terms. For example, Germany’s 5-year sovereign bond currently has a yield of -0.23%.
  • At the same time, some European companies have benefitted from the current trade turmoil, as China shifts its trade toward relatively low-tariff European suppliers and customers.
  • That combined result (ultra-low interest rates and increasing trade) have been particularly helpful to firms in manufacturing-heavy countries such as Germany.
  • While the strong dollar has masked these positive trends, it’s very possible that if U.S. trade negotiations begin to deliver positive results, the greenback could retreat, enhancing the opportunity in Europe.
  • The bottom line: astute fundamentals-driven investors who have the experience to find growing companies at advantageous prices should look beyond currencies to potentially benefit from trends, wherever they may be found.
  • For further insight into the dollar and U.S. investors, explore The Great Divergence: Strong Dollar vs. The World


All data Source: Bloomberg, August 30, 2018, unless otherwise specified.


The Bloomberg Dollar Spot Index tracks the performance of a basket of ten leading global currencies versus the U.S. Dollar. Each currency  in the basket and their weight is determined annually based on their share of international trade and FX liquidity.

The MSCI All Country World ex USA Index is a free-float weighted equity index including developed and emerging market equities, except for equities in the U.S.

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S.


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