Gavekal Capital: Charting The Winners And Losers Of The Latest Surge In The USD

Friday, March 13, 2015

Charting The Winners And Losers Of The Latest Surge In The USD

On March 4th we wrote in The Dollar Is Breaking Out Again And What It Means For Stocks that "for a variety of cyclical and structural reasons...stocks in North America tend to be the relative beneficiary of USD strength while stocks in other regions generally, but not always, tend to underperform. The negative correlation is especially strong for European stocks." Well, since then the USD has surged another 6% so we thought we'd review how things have played out.

In the six charts below we plot the ICE USD index (blue line, left axis, inverted) against the relative performance in USD of each of the six MSCI developed and emerging market regions relative to the MSCI All Country World Index (red line, right axis). Here is a breakdown of the relative performance since our post last week:

Relative performance of North American stocks has improved, though has not broken out to a new high
Relative performance of Europe has suffered, but has not broken out to a new low
Relative performance of the Pacific region (which is mostly Japanese stocks) has continued to improve - this may have something to do with the fact that the yen has been stable
Relative performance of EM Asia has deteriorated just slightly
Relative performance of EM EMEA has suffered and is close to making a new cycle low
Relative performance of EM Latin America has suffered and has made a new cycle low

So it appears that Europe and ex-Asia EMs are taking the brunt of the pain while North America and Japan are benefiting from this latest bout of USD strength.

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Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
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