The dollar lost ground around the globe in the week leading up
to Barack Obama's second inauguration. As a result, U.S. investors
in foreign countries saw significant gains in equity markets as
foreign currencies rallied against the greenback.
The few notable exceptions this week were the South African
rand, the Japanese yen and the Egyptian pound, which slid against
the greenback amid a series of concerns and events.
The impact from currency doesn't actually become real until
positions are sold. That said, changes in various currency crosses
are a crucial factor that investors in globalized markets must
increasingly take into account, as our weekly Currency Impact
Report that's based on MSCI data makes clear.
Some of last week's highlights include:
- The yen was notable last week, continuing its downfall
against the greenback. As the Bank of Japan continues its
monetary easing efforts through a massive asset purchase program,
the yen has tumbled week after week. In the past three month, the
yen's depreciation has brought a significant difference in
Japanese equity returns between U.S. and local investors, with
U.S. investors up 11.16 percent in the last three months, while
local investors have seen returns of 26.13 percent in the same
period. This has resulted in huge asset inflows into funds like
the WisdomTree Japan Hedged Equity Fund (NYSEArca:DXJ).
- The South African rand also saw a significant pullback
against the U.S. dollar this past week, as labor protests in
mining and agriculture increased concerns that the commodity-rich
nation might experience slower growth in exports. U.S. investors
in South African equities saw returns of -2.77 percent in the
past week, while local investors booked returns of 1.06 percent
in the same period.
- The euro saw significant gains in the past week, as well as
the last three months, with U.S. investors in European equities
coming ahead of local investors by an average of 2 to 3 percent.
European Central Bank President Mario Draghi has suggested that
the worst of the sovereign debt crisis has passed, with the ECB's
bond-purchase plan still untouched.
- The Egyptian pound has been steadily losing ground against
the greenback, as the Egyptian Central Bank held its third
auction of the U.S. dollar in an effort to control its dwindling
reserves. The pound saw significant depreciation after S&P
lowered Egpyt's credit rating to the same junk level as Greece
and Pakistan. As a result, in the past three months, U.S
investors in Egyptian equities have seen returns of -6.27
percent, while local investors have essentially seen flat returns
in the same period.
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