International investments and currency! ( And the relevance of DXY)


Any international investment can only generate effective returns when these two factors combine- fundamental growth & an appreciation in the currency where investment is made. Time and again, expats and investors fail to achieve that. Example- A 25% return over last 4 years in a British company/index didn’t generate any effective returns for a dollar focused investor as the pound depreciated by 25% over dollars.

Here are a few pointers-

• Target returns in a currency you plan to retire in (or dollars- global standard)

• Emerging markets would always depreciate compared to dollars over long periods - target returns post adjusting for expected depreciation (usually inflation differential)

• After years of underperformance, European economies and currency (Euro) are expected to perform better ( ECB planning to stop QE and raise interest rates)

• INR would remain under pressure from Dollar. However, reducing oil prices and the FED decision to slow down rate hikes works in INR’s favour

• DXY (shown in chart below) is the US Dollar Index. It measures dollar's performance compared to other major currencies. Dollar has mostly crushed other global currencies over last 10 year