Stock indexes in the U.S. have (mostly) surged to new highs in recent weeks. The venerable S&P 500 index – everyone’s favorite scorecard of U.S. blue-chip shares – finally made it over the hump just a few weeks ago. Plus, the old sentimental favorite, (but much narrower barometer of U.S. performance), the Dow Jones Industrial Average hit new record highs in April.
It’s only fair to mention that the tech-heavy Nasdaq Composite Index is still about 50% below its dot.com-bubble peak. But for the most part, investors that stuck with U.S. blue chip shares -- through thick and thin -- have finally been rewarded. It seems the painful post-bubble bear market in America’s blue-chip stocks has been erased at long last. Well, not entirely.
Take a Second Look at U.S. Markets with a Better View from Abroad
If you look instead at the U.S. stock market’s performance from the point of view of an overseas investor, the returns look very poor indeed. And in a global investment marketplace that’s growing more tightly integrated by the day, how else would you view U.S. markets?
As I’m fond of saying, it’s a big wide world of investment opportunities out there, so you shouldn’t limit yourself to only domestic stocks, ETFs, or mutual funds. International stock markets today make up about 55% of the world’s total stock market capitalization. And they’re growing fast. As a result, don’t use the S&P 500 or the Dow as your only benchmarks to judge how well you’re doing.
From the point of view of a European investor for instance, U.S. shares are performing miserably. In fact, U.S. stocks are still languishing far below their previous peaks. The S&P 500 Index for instance, priced in euros, is still almost 40% off its 2000 high. The Nasdaq when priced in euro, remains about 65% below it’s previous peak – yikes!
Sinking Dollar Saps U.S. Stock Returns in Global Terms
Or course the sinking U.S. dollar plays a big role in this dichotomy of performance, depending on which side of the “pond” your stock account is located. The euro has gained about 60% in value vs. the buck since 2000. That means many U.S. dollar denominated asset classes look as if they’ve been standing still for the past several years!
But this trend isn’t just confined to the euro, and it isn’t just an historical issue either. This trend continues to impact U.S. stock performance today in 2007, and in other global currencies as well.
Look at the Brazilian real for example. It’s another currency that is surging higher against the dollar. Investors in Brazil’s Bovespa Index are enjoying spectacular year-to-date gains of 28% in dollar terms, while stocks are up just 18% locally.
Or take Australia. In the land down under, investors have enjoyed stock market gains of about 9% in the benchmark ASX 200 Index this year – similar to the return of the Dow. But for U.S. based investors, Australia’s market is up nearly 18% in dollar terms.
Taking a look at a leading stock market much closer to home, the Toronto Stock Exchange 300 Composite is up a rather modest 7% this year for local investors living in the great white north. But for U.S. stock accounts, Canada has been a profit bonanza with gains of 17% this year – mostly courtesy of the strong Canuck-buck – which continues to surge towards par with the U.S. dollar.
The Two Key Factors that Determine Whether You Profit or Not
These are just a few examples that prove that when it comes to investing overseas, there are at least two key dynamics at work influencing your returns.
The first is what’s going on in the home market -- within the country or region you’re considering for investment. What’s happening with the local economy, interest rates, deficits, trade balances, corporate profits, etc. – these factors are the driving influence behind how well a market performs on a nominal basis – that is, in its own local currency.
But as a global investor, you must also carefully consider what’s going on with global currencies, in relation to your own home currency. That’s where you can earn a potential double-play on your global market gains.
It’s only fair to mention that the tech-heavy Nasdaq Composite Index is still about 50% below its dot.com-bubble peak. But for the most part, investors that stuck with U.S. blue chip shares -- through thick and thin -- have finally been rewarded. It seems the painful post-bubble bear market in America’s blue-chip stocks has been erased at long last. Well, not entirely.
Take a Second Look at U.S. Markets with a Better View from Abroad
If you look instead at the U.S. stock market’s performance from the point of view of an overseas investor, the returns look very poor indeed. And in a global investment marketplace that’s growing more tightly integrated by the day, how else would you view U.S. markets?
As I’m fond of saying, it’s a big wide world of investment opportunities out there, so you shouldn’t limit yourself to only domestic stocks, ETFs, or mutual funds. International stock markets today make up about 55% of the world’s total stock market capitalization. And they’re growing fast. As a result, don’t use the S&P 500 or the Dow as your only benchmarks to judge how well you’re doing.
From the point of view of a European investor for instance, U.S. shares are performing miserably. In fact, U.S. stocks are still languishing far below their previous peaks. The S&P 500 Index for instance, priced in euros, is still almost 40% off its 2000 high. The Nasdaq when priced in euro, remains about 65% below it’s previous peak – yikes!
Sinking Dollar Saps U.S. Stock Returns in Global Terms
Or course the sinking U.S. dollar plays a big role in this dichotomy of performance, depending on which side of the “pond” your stock account is located. The euro has gained about 60% in value vs. the buck since 2000. That means many U.S. dollar denominated asset classes look as if they’ve been standing still for the past several years!
But this trend isn’t just confined to the euro, and it isn’t just an historical issue either. This trend continues to impact U.S. stock performance today in 2007, and in other global currencies as well.
Look at the Brazilian real for example. It’s another currency that is surging higher against the dollar. Investors in Brazil’s Bovespa Index are enjoying spectacular year-to-date gains of 28% in dollar terms, while stocks are up just 18% locally.
Or take Australia. In the land down under, investors have enjoyed stock market gains of about 9% in the benchmark ASX 200 Index this year – similar to the return of the Dow. But for U.S. based investors, Australia’s market is up nearly 18% in dollar terms.
Taking a look at a leading stock market much closer to home, the Toronto Stock Exchange 300 Composite is up a rather modest 7% this year for local investors living in the great white north. But for U.S. stock accounts, Canada has been a profit bonanza with gains of 17% this year – mostly courtesy of the strong Canuck-buck – which continues to surge towards par with the U.S. dollar.
The Two Key Factors that Determine Whether You Profit or Not
These are just a few examples that prove that when it comes to investing overseas, there are at least two key dynamics at work influencing your returns.
The first is what’s going on in the home market -- within the country or region you’re considering for investment. What’s happening with the local economy, interest rates, deficits, trade balances, corporate profits, etc. – these factors are the driving influence behind how well a market performs on a nominal basis – that is, in its own local currency.
But as a global investor, you must also carefully consider what’s going on with global currencies, in relation to your own home currency. That’s where you can earn a potential double-play on your global market gains.
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