Tencent Securities News Beijing time on the evening of July 26th, according to MarketWatch, for the recent weakness of the US dollar, many people have reason to be worried, but at least American stock investors should raise their glasses to celebrate.
Strategists at Morgan Stanley point out that the exchange rate of the US currency has fallen by more than 8 per cent so far this year, which will be a major positive for US companies in the second half of the year.
In a research report released on Monday, Morgan Stanley's research team, led by Michael J. Wilson, explained that in addition to creating a looser financial environment, a weak currency can also help companies boost revenue and earnings growth. "given the strong performance of the US dollar in the second half of 2016, the positive factors provided by the US dollar will be further amplified in the second half of 2017, even if the exchange rate does not change between now and the end of the year, and its influence is considerable."
Last year, the dollar was indeed strong, with the ICE dollar index closing at 102.29 in 2016, the only time it has been seen since 2002 and up 3.5 per cent for the year. Even if the dollar index stands still from now on, it will be 8% lower by the end of December than it was a year earlier.
The ICE dollar index, based on the exchange rate of the dollar against a basket of currencies, is down about 8% so far this year, with most of the losses coming from the past three months. The dollar rose slightly on Monday.
Mr Wilson and his colleagues expect the dollar index to be flat and down another 5 per cent between now and the end of the year. This expectation is also largely related to their bullish attitude towards the euro, which they believe will rise to $1.18 by the end of the year.
The euro has risen about 8% against the dollar so far this year, making it one of the strongest currencies relatively, in large part because of the increasingly hawkish rhetoric of the European Central Bank, while at the same time, because of weak economic data, many people are beginning to suspect that it will be difficult for the Fed to raise interest rates further.
In addition, the dollar must face political uncertainty and the possibility that the Fed may have a new chairman next year.
So why do stocks benefit from the weakness of the dollar? Wilson explains that the key lies in multinationals with large overseas sales.
For fourth-quarter sales and earnings, the dollar boost came at the right time. At present, the market expects earnings per share in the S & P 500 to grow by 13% in the fourth quarter compared with the same period last year. In our view, bullish on the future of US stocks, such a high threshold undoubtedly means a lot of risk. " Mr Wilson added that a weaker dollar could make these expectations "easier to meet".
What are the specific benefits of a weak dollar? Strategists at Morgan Stanley estimate that every 1 per cent decline in the dollar increases earnings per share by an additional 0.5 per cent. The decline in the dollar so far this year will not only support corporate performance in the second half of 2017, but its influence will continue into 2018.
In other words, the 8% decline in the dollar index so far this year means that earnings per share in the S & P 500 will increase by an additional 4% for the full year 2018. If the dollar index falls further for the rest of the year, falling 13 per cent for the year, earnings per share will increase by 6.5 per cent. " (Ferry Green)