As the U.S. dollar faces the possibility of a continuous decline against foreign currencies, non-U.S. stocks are becoming increasingly enticing for U.S. investors. Industry experts are even speculating that the dollar may completely erase all the gains it made post-pandemic.
The advantage of a weakening dollar DX00, -0.05% lies in two key factors for U.S. investors in non-U.S. stocks. Firstly, there are the local-currency gains of the stocks themselves. Secondly, there is the added benefit of the increased value of these local currencies when converted back into U.S. dollars.
Since September of last year, U.S. investors who have included non-U.S. stocks in their portfolios have enjoyed this dual advantage. Back when the U.S. Dollar Index DXY, +0.55% reached a peak of nearly 115, this trend began. Presently, the index stands at approximately 100. Since that September high, non-U.S. stocks have outperformed their U.S. counterparts by more than three percentage points, as evidenced by the success of the Vanguard Total International Stock ETF VXUS, -0.57% and the Vanguard Total Stock Market ETF VTI, -0.72%.
Non-U.S. Stocks: A Promising Bet
The declining value of the U.S. dollar has provoked uncertainty among investors. However, an appealing alternative lies in favor of non-U.S. stocks, thanks to their relative valuation. Currently, the U.S. stock market stands out as the most overvalued globally, as evidenced by the renowned Cyclically-Adjusted Price/Earnings ratio (CAPE) developed by Robert Shiller, a Yale University professor and Nobel laureate. Contrasting the U.S. CAPE of 30.8, Europe’s CAPE sits at 17.4, while Asia’s stands at 13.8 (refer to the chart below for a visual representation).
A Cost-Effective Option for U.S. Investors
U.S. investors seeking exposure to non-U.S. stocks can easily and affordably achieve this through an index fund. A leading example is the Vanguard Total International Stock ETF, boasting an impressively low expense ratio of just 0.07%, equivalent to only $7 per $10,000 invested.
Handpicked Recommendations for Individual Stock Selection
For those interested in taking a more hands-on approach to investing, we have compiled a list of recommended non-U.S. companies provided by top-performing newsletters that our auditing firm monitors. These companies are sorted by their respective headquarters’ countries and are presented in alphabetical order.
More: Stock Bulls Have Room to Run
The 3-Year View on Nasdaq and S&P 500 Returns
To gain a better perspective on the stock-market bubble trouble, let’s take a look at the returns of the Nasdaq and S&P 500 over the past three years. This longer-term view provides valuable insights into the market trends and helps us assess the overall health of these indices.
While concerns regarding an overbought market persist, it is crucial to remember that an overbought status alone does not warrant immediate action. The stock-market bubble trouble may not be as alarming as it seems when we consider the 3-year returns of Nasdaq and S&P 500. Therefore, there is reason to remain optimistic about the future performance of stock bulls in this market.