As the first chart shows, the USD index has broken out of its consolidation to make another cycle high. In the six charts that follow we compare the USD index (blue line, left axis, inverted) to the relative performance of stocks in a region vs the MSCI ACWI (red line, right axis) calculated in USD. We also show the 5-year daily correlation between the USD index and the relative performance of the regional index. A positive correlation implies that stocks in that region tend to outperform in periods of USD strength and vice versa.
As is obvious from the charts, 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.
For unhedged USD based investors, then, owning foreign stocks in periods of USD strength can be detrimental to the value of one's investment account. The US has been outperforming other markets for a long time now, but if history is a guide then another move up in the dollar likely means more of the same.
MSCI North America Relative to MSCI ACWI in USD:
MSCI Europe Relative to MSCI ACWI in USD:
MSCI Pacific Relative to MSCI ACWI in USD:
MSCI EM Asia Relative to MSCI ACWI in USD:
MSCI EM EMEA Relative to MSCI ACWI in USD:
MSCI EM Latin America Relative to MSCI ACWI in USD: