International Equity Returns vs. Strong Dollar

April 09, 2015 | Jesus Jimenez, Vice President

A major concern for investors over the last year has been the impact of a stronger dollar on international equity returns. Generally speaking, a stronger dollar translates to lower returns for international equity investments, and in 2014 the currency effect on the EAFE index was -10.9%, a sizable reduction to returns for U.S.-based investors. On the other hand, valuations for international equities – especially those in Europe – appear far more attractive relative to levels in the U.S., and suggest higher upside potential, with the ECB’s asset purchase program offering further upside for European equities.

To date, how has this dynamic played out? Have the compelling valuations abroad been more than offset by the currency drag from the dollar’s strength? Our chart this week examines these very questions, looking at year-to-date performance for major markets and regions. Perhaps not surprisingly, Eurozone equities show the largest downward adjustment as a result of exchange rates, while Japan and China show little to no difference between local and dollar-denominated returns. After the first quarter, international equities have outperformed their U.S. counterparts in 2015 and rewarded investors who were patient with their non-U.S. equity allocations. Though it has only been one quarter, this is a theme that may persist for the better part of the year, as the dollar is still stronger than its historical average versus the Euro, and equity valuations are suppressed relative to those in the U.S.

Jesus Jimenez
Vice President

Get to Know Jesus

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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