By Allyn Hughes, CFP®, CLU®, ChFC®, CAP®
2014 was a decent year to be an international stock investor, as long as you invested using the local currency and not U.S. dollars.
Economic and political issues in Europe – including Greek economic failure, and political upheaval in Russia and Ukraine – helped the dollar strengthen against the euro and the British pound. In Asia Japanese economic policies to help overcome economic stagnation decreased the value of the yen against the dollar.
These factors and others helped turn positive stock investment returns in local currency into losses when dollars were used to buy and sell these international stocks.
Most prognosticators that we follow suggest that this trend will continue in 2015 because of a variety of economic factors for the U.S.:
- relatively high growth rates,
- lowering fiscal deficits,
- decreasing unemployment,
- lower energy costs, and
- higher U.S. Treasury interest rates than other foreign governments.
Here is how investment returns were affected by the strengthening U.S. dollar in 2014.
|Country||Market Size (Billion US $)||2014 Return (local currency)||2014 Return (U.S. $)|
|China (Hong Kong) *||3,697||+23.63%||+24.49%|
*Currency peg of 7 HK dollars to 1 US dollar
If the value of the dollar is resilient, U.S. investors could face stronger headwinds for their international stock investments in 2015.