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Investors advised to reduce international exposure and stick with US stocks
Weak Dollar Impact
According to Main Management CEO Kim Arthur, global markets will struggle due to the weakening US dollar. The future performance of international stocks versus US stocks is highly influenced by the movement of the US dollar. Arthur explains that from 2011 to 2022, the dollar was in a bull market, leading to losses in international equities regardless of investment decisions. With the US dollar index hitting a 15-month low, Arthur anticipates a further decline in the dollar. He believes that the current setup of lower inflation and higher interest rates in the US will eventually lead to a stronger dollar.
Appetite for US Mega-Cap Technology Stocks
ETF Action Founding Partner Mike Akins suggests that the strong appetite for US mega-cap technology stocks is another factor that is hurting global stocks. He observes that very little money is flowing into the international marketplace, with most investments focused on US stocks. The dominance of tech giants like Microsoft, Apple, Amazon, Tesla, and Google has led to multiple expansions in the S&P 500, making it challenging for value to return to the international and emerging markets.
Performance Comparison
As of Friday's close, the iShares MSCI Emerging Markets ETF is up 8% this year, while the S&P 500 has seen a 17% increase. These numbers highlight the disparity in performance between international and US stocks and further support the argument for reducing international exposure and sticking with US stocks.
Impact on New Businesses
The advice to reduce international exposure and focus on US stocks has important implications for new businesses looking to enter the market. The weakening of the US dollar and the dominance of US mega-cap technology stocks are two key factors influencing this shift in investment strategy.
For new businesses, the weak dollar may present some challenges. A declining currency can make it more expensive to import raw materials or goods from overseas suppliers, which could impact production costs. However, on the positive side, a weaker dollar can also make US exports more competitive in international markets, potentially benefiting businesses that rely on foreign sales.
Furthermore, the strong appetite for US mega-cap technology stocks indicates the ongoing focus on innovation and technological advancements. New businesses operating in the technology sector may find increased investor interest and funding opportunities in the US market. However, they may also face intense competition from established tech giants that already dominate the market.
Overall, new businesses should closely monitor the performance of US stocks and consider the potential impact of a weaker dollar on their operations. It may be important to evaluate the global market conditions and assess the specific opportunities and challenges within their industry. While the current trend suggests a preference for US stocks, it is always advisable for new businesses to conduct thorough market research and seek guidance from financial advisors to make informed investment decisions.
Article First Published at: https://www.cnbc.com/2023/07/15/why-investors-may-want-to-limit-international-market-exposure.html
