But you know where I continue to see some things I like? Overseas.
Let’s talk about international equities.
With the broad dollar weakness since February, more and more international ETFs are looking good.
Remember, when you invest in these funds, you are not just making a bet on stocks and markets in other parts of the world…
You are also making a bet on a certain country or region's currency (or currencies), and are effectively shorting US dollars.
Think about it. These funds are comprised of international stocks that trade on non-US exchanges. As such, they have to be purchased with the local currency of that country. So, dollars are exchanged for Euro, Yen, Baht, Real, or whatever it may be.
For this reason, I am always looking at the local currencies in addition to the local stock market or index that the fund tracks.
Oftentimes, when we’re dealing with volatile currency markets, the forex component will have more of an impact on the fund's performance than the performance of the stocks themselves.
An easy way to gauge how much forex is contributing to performance is to overlay the ETF with the currency, like this:
And it won’t always be perfect. In the case of EWD, above, the largest component, $SPOT, is actually traded in EUR on the Luxembourg Stock Exchange. However, the rest of the holdings are pretty much in Swedish Krona.
So, if I’m buying EWD, I want both SEK and the MSCI Sweden Index that the fund tracks, to be in uptrends.
The index already is. It’s trading at its prior-cycle highs as we speak.
Meanwhile, SEK is on the brink of breaking out of a massive reversal pattern.
I have EWD on my watchlist right now. As soon as the base in Krona prints, I’ll be in.
Now, let's look at one where the currency plays such a large role in performance that you really can’t own it if it’s not cooperating.
Here is the Brazilian Real with the MSCI Brazil ETF $EWZ:
The Brazilian Bovespa and local stock indexes are near all-time highs right now. But that hasn’t mattered.
If you’ve been a US investor trying to buy Brazilian stocks for the past decade and a half, you’ve been killed… and it's been all because of the currency.
You simply can’t own a fund like EWZ unless the Real is in an uptrend. This chart shows that.
If BRL is above that shelf of lows from 2020-2021, then EWZ will be on my radar too. I’ll probably take a shot at a trade on this one soon.
I’m going to continue writing about the global investing opportunities I come across.
I really think we’re in for a big shift that favors currencies and stocks around the world.
The dollar and the S&P 500 had their time. They’ve steadily outperformed their international counterparts since the financial crisis lows. Just imagine if the next 17 years work in reverse.
