Investors may consider reducing their exposure to international markets at this time and focusing on domestic opportunities.
Kim Arthur, CEO of Main Management, believes that global markets will face significant challenges due to the weakening US dollar.
“The future performance of international stocks compared to US stocks is heavily influenced by the movement of the US dollar,” Arthur explained in an interview with CNBC’s “ETF Edge” this week. “Between 2011 and 2022, the dollar experienced a consistent bull market, resulting in losses for international equities regardless of investment strategies.”
Last Friday, the U.S. dollar index reached a 15-month low, approximately 10 months after reaching a 10-year high.
“The dollar peaked last September. Therefore, it is crucial to have a perspective on the future direction of the dollar. We believe that the dollar is on a downward trend,” Arthur stated.
Arthur, who previously served as the head of Bank of America’s institutional sales and trading department, predicts that the dollar will eventually regain strength.
“The United States is at the forefront of the global fight against inflation. Our inflation rates are lower compared to other countries, and our interest rates are higher. This creates an ideal setup where we may lower rates before the rest of the world, leading to a stronger dollar,” Arthur explained.
Mike Akins, Founding Partner of ETF Action, also points out another factor that could negatively impact global stocks: the continued preference for U.S. mega-cap technology stocks.
“More and more investment funds are flowing into U.S. stocks, while very little is being allocated to international markets. This self-reinforcing trend is driven by the dominance of companies like Microsoft, Apple, Amazon, Tesla, and Google [Alphabet], which exert a significant influence on the broader S&P 500. To see a resurgence in value, and a return of interest in international and emerging markets, catalysts need to emerge from these major players,” Akins commented.
As of the recent market close, the iShares MSCI Emerging Markets ETF has gained 8% this year, while the S&P 500 has risen by 17%.
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