Weak currency countries among 17 major markets produced US dollar returns 1.7% higher a year on average over the past century. A broader sample of 53 countries since 1972 found a bigger 8.2% annual return premium. While export-driven stock markets can still do well under a strong currency, exporters generally stand to benefit from earnings improvements under weaker currencies.
These higher earnings have also more than compensated for the reduced price-earnings ratios that tend to follow from weaker currencies and associated inflation. However, the currency kicker for earnings is more muted with less export-oriented economies such as the US, so investors are advised to seek out companies and sectors that stand to benefit from weaker currencies.
Source: Global Investment Returns Yearbook 2006
ABN-Amro with Elroy Dimson, Paul Marsh and Mike Staunton
London Business School, February 2006
Review by Steve Lodge