Dollar's Slide Hurting Foreign Investors

By: Prieur du Plessis | Wed, May 27, 2009
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With the US dollar trading at a five-month low, spare a thought for non-US investors invested in US stocks and bonds.

The graph below compares the performance of the US 10-year Treasury Note in US dollar terms (green line) with the same bonds from the viewpoint of a European investor (red line). (Although I am using the euro in this example, the same logic applies to most other non-US dollar currencies.) Since the peak of the US dollar against the euro on March 5, US investors have lost 2.6% on their Treasury investments, but euro investors are completely under water to the tune of -11.9%. The year-to-date numbers are down by 5.6% (US dollar) and 5.7% (euro) respectively.


Source: StockCharts.com

The next graph shows the S&P 500 Index in both US dollar terms (green line) and euro terms (red line). Whereas US investors have every reason to be pleased with a huge return of +27.7%, euro investors received a less sterling but nevertheless palatable +15.6%, given the magnitude of the rally. For the year to date the figures are +0.8% (US dollar) and -0.7% (euro).


Source: StockCharts.com

In the words of Richard Russell (Dow Theory Letters): "The US Dollar Index is sitting on what I term 'the edge of the cliff'. If the dollar falls apart, we're dealing with a whole new story - it will affect almost all investments, US and foreign. The sliding dollar is already putting pressure on Treasury bonds, particularly the long-term 30-year maturities. This is causing our creditors (think China) to cut back."

Will the greenback turn out to be the Achilles heel of the US economy?

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Prieur du Plessis

Author: Prieur du Plessis

Dr Prieur du Plessis
investmentpostcards.com

Dr Prieur du Plessis

With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.

He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).

Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.

Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.

Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.

In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).

Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.

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