Forex Signals – Decline of the Dollar

(Bloomberg) — Six months ago, exchange rates would have mattered less in a global investor’s stock-picking process. Now with the dollar facing what some warn is an existential threat, currencies are in the limelight.

FX Signals

The Winners For New York-based hedge fund manager Thomas J. Hayes, the dollar’s downtrend is a signal to buy riskier EM stocks and commodities.

“Cheap dollar funding encourages risk taking and money flows into perceived ‘higher growth’ locales,” said Hayes, chairman of Great Hill Capital LLC. He favors emerging-market stocks partly as companies will have an easier time servicing dollar-denominated debt.

Equities in developing nations have recorded a consistently inverse relationship with the dollar, with the most profound impact in Latin America, according to Citigroup Inc (NYSE:C). strategists including Jeremy Hale.

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“While exporters to the U.S. are negatively impacted due to a weaker dollar, such periods are usually very supportive of global equities, led by EM/Asia,” the Jefferies team wrote. From a global sector point of view, “cyclicals such as energy, materials and capital goods benefit strongly.”

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To be sure, not everyone places currency fluctuations as a core part of their investment considerations. Case in point is Phillip Kim, a portfolio manager at Morgan Stanley (NYSE:MS) Investment Management in Chicago, who said his team is more focused on discussions such as value versus growth.

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Invesco Ltd.’s Nixon Mak, a strategist, is also a fan of U.S. stocks, even if a weaker currency ends up weighing on their absolute returns for global investors – Best times trade forex

“With strong domestic demand and sustainable earnings growth from certain sectors, we believe the U.S. equity market is still favorable now and the currency effect could be offset by the return from capital,” he said.The Losers.

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What are indices?

“Traditionally the currency effect is minimal with only a maximum 3% to 5% of impact in absolute return,” said Invesco’s Mak. However, the pandemic-induced rout earlier and the change in environment to one of low growth and yield has changed the investment dynamics, he said.

“In this sense, the currency return could become a major component in a total return perspective,” Mak said.

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Forex Signals – Decline of the Dollar