Lost in translation

In September, it rose by another 3.7%, lifting this year’s gain to 14.8%. The MSCI World Index, dominated by US stocks, has recorded similar returns. If you knew major events in advance, like the tariff brouhaha, you probably wouldn’t have expected such pleasant markets.

For European investors, however, the party has been quite a bit more restrained. As the US dollar has depreciated by 12–15% against our local currencies, most of these dollar returns have been, well, lost in translation. Global (i.e. US) stocks have returned very little to investors on this side of the Atlantic Ocean – which is where all of our clients reside.

Do you feel like you missed the party? Then please extend your line of thought. Because the very weakness of the US dollar is an important reason why US stocks have been thundering on. In aggregate, revenues in currencies other than the US dollar account for more than 40% of S&P 500 revenues. In some sectors, like technology and consumer staples, it’s in the range of 50-65%. And several companies, like Netflix, PepsiCo, and 3M, have already reported stronger revenues due to favourable currency translation.

This year’s bull run has been sustained by very strong earnings. While concurrent multiples are somewhat higher than at the beginning of the year, estimates for the next 12 months have risen by 8%. A major part of this increase can probably be attributed to the weaker US dollar. Previous reports, from sources like WisdomTree and J.P. Morgan, indicate that a 10% decline in the US dollar is associated with a 6–8% boost to earnings.

Hence, if it weren’t for the weak dollar, the US 2025 stock party might have never commenced.

As a more general observation, country and currency of domicile may tell you very little about financial sensitivities of larger corporations. Their revenues and costs often reflect a hodgepodge of countries and currencies, and the short-term impact may have the opposite sign of the long-term impact – like debt becoming more expensive while real revenues rise.

You might say that many large companies are in fact priced in international dollars – or whatever you would like to call their particular currency basket.

Anyway, when it comes to this year’s returns in local versus investor currency – weep not for what you’ve missed; without the weaker dollar, there’d have been little to miss in the first place.

Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.