Per reporter: Yu Peiying Per editor: Lan Suying
Before the plunge on September 3, U.S. stocks were performing like no other, with the ratio of total U.S. stock market capitalization to GDP climbing to 177 percent at one point. Behind ruhong's rally are many foreign investors.
According to the Goldman Sachs report, Fed data shows that foreign investors are accelerating their purchases of U.S. stocks. In the first quarter of this year, foreign investors bought a total of $187 billion in stocks, or 16 percent of total U.S. stocks, near the highest point in 70 years since the end of the war. In Goldman Sachs' view, it is the depreciation of the us dollar that attracts foreign investors to enter, which has boosted the rise of US stocks. "The depreciation of the us dollar has always been the biggest catalyst for foreign investors' demand for US stocks." David Kostin, chief U.S. equity strategist at Goldman Sachs, said.
Is there an inevitable link between the rise in US stocks and the depreciation of the US dollar? Is the "Nasdaq Whale" SoftBank's investment in U.S. technology stocks attracted to some extent by the decline in the dollar? In this regard, Nicholas Colas, co-founder of DataTrek Research, believes that "no matter what year, there is no long-term correlation between how the dollar trades and how the US stock market performs." ”
Can a weakening U.S. dollar boost U.S. stock investment by overseas investors? Analyst: Timing is critical
Goldman Sachs predicts that the decline in the second half of the dollar will continue to encourage foreign investors to increase their holdings in U.S. stocks, and foreign investors' net demand for U.S. stocks will be about $300 billion for the whole year. In the case of the S&P 500, a third of the investors who hold the product come from overseas, and the weak dollar makes the index attractive, and the earnings in us dollars are extremely impressive. Goldman Sachs believes that for every 10 percent drop in the dollar, profit per share of the S&P 500 constituents increases by 3 percent.
The Daily Economic News noted that in the 36 weeks after entering 2020, the DOLLAR index has closed down for 19 weeks, and the cumulative decline this year has reached 3.72%. On March 19, the dollar index reached its year's high, closing at 102.8825, but closed at 92.8080 on September 4, down 9.8% from the above high.
"Goldman's argument is that the depreciation of the dollar allows foreign investors to buy stocks in the U.S. (where the source of earnings is cheaper), which they see as advantageous. However, timing is crucial. Michael Kelly, head of global assets at PineBridge Investments, told the Daily Economic News. The dollar fell like a knife falling, and no one wanted to reach out and pick up the falling knife. Only when the dollar's decline (convincingly) bottoms out can the dollar's depreciation become a catalyst for foreign investors to buy U.S. stocks. I don't think [dollars] have reached this point. ”
The Daily Economic News noted that global sovereign wealth funds invested heavily in the global stock market in the second quarter of this year, but avoided the US stock market. In the quarter, however, the cumulative decline in the dollar index was nearly 1.6%. According to the latest data released by eVestment, sovereign wealth funds invested $7.1 billion in global equity markets in the second quarter, the most in several years, but most of them were invested outside the United States, and only $704 million went to the U.S. equity strategy.
Matthew Williams, head of institutional sales for Europe, middle east and Africa at well-known asset manager Franklin Templeton, believes that this may be due to the current overvaluation of U.S. stocks, as it has a price-to-earnings ratio of about 29 times during the record highs of the S&P 500.
In this regard, Kelly also expressed a similar view to the Daily Economic News. "In the years leading up to the pandemic, the U.S. was clearly ahead of fundamentals, and now the global economy is showing a V-shaped recovery. To some extent, non-U.S. stocks will now have higher risk/returns, and most sovereign wealth funds estimate the same. Kelly analyzed.
In addition to the investment yield, Williams believes that uncertainty about the results of the November US election increases the risk of investing in US stocks and makes the market less attractive.
It can be seen that the attractiveness of the US stock market to foreign investors does not depend solely on the depreciation of the US dollar.
Growth stocks and technology stocks benefited from the depreciation of the US dollar
Nicholas Colas, co-founder of DataTrek Research, used the 2008 global financial crisis as a timeline to observe how the dollar performs as it rises or falls. He concluded that "regardless of the year, there is no long-term correlation between how the dollar trades and how U.S. stocks perform." ”
However, Kolas also mentioned that although the depreciation of the US dollar will not promote a large-scale rise in the US stock market, it may have a greater impact on individual companies or individual sectors, depending on how much revenue the company has from overseas. Citing FactSet, Colas found that 98 percent, 82 percent and 78 percent of revenue from energy stocks, real estate stocks, and financial stocks, respectively, came from the United States. More than half of the revenue from materials and technology stocks comes from overseas.
Goldman Sachs' Costin believes that a weaker dollar will push up the trend of growth stocks, technology stocks and other stocks that have performed better in the past, and cyclical stocks will perform relatively weakly. On September 4, local time, according to the Financial Times, citing sources familiar with the matter, SoftBank snapped up billions of dollars of U.S. technology stock options in the past month, driving trading volume growth and triggering a frenzy of U.S. stock trading. Some tech stocks have recorded the highest volume of options trading ever.
If the U.S. dollar continues its previous decline in the second half of the year, will this further boost overseas investors like SoftBank to buy U.S. technology stocks?
"We don't think a lower dollar will dampen foreign investors' appetite for specific stocks, especially those that can't be found outside the U.S. market, especially the numerous U.S. tech stocks." Kelly told the Daily Economic News. "The depreciation of the dollar will not discourage investment demand for technology stocks unique to the United States, but it is not saying that the depreciation of the dollar is conducive to the rise of the stock market," he stressed. After the dollar bottoms out, we'll see more opportunities emerge. ”
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