Dollar Dollar Bills Y'all

Dollar Dollar Bills Y'all

This past weekend my high school alumni network did an internal webinar talking about money and investing. We had great interests, with up to 40 people participating in the event (20% of our graduating class). Looking back, it is not really surprising that the turnout was great. Like many other Millennials and older Gen-Zs, reaching financial success is usually the number one focus for those in their twenties. This fact combined with the democratization of investing through mobile trading platforms such as Robinhood fueled young professionals’ interest and hunger to make money in the market. Outside of the US, even in developing countries, retail interest in the financial market has also been increasing — because no matter where you’re, technology enables easy access into the financial market in this environment where brokers compete against each other to provide the cheapest and easiest access.

When I’m talking to friends outside of the US about investing, regardless of whether they’re in developing or other developed countries, I always make sure to tell them to participate in the US market whenever their capital permits. This statement would then snowball into further conversations as people ask “why?”. Generally, people think that if they’re based in Hong Kong, it is better for them to participate in the HK market, and so on with other countries (EU, SG, JP, etc.). I strongly argue that even if you’re young, you should participate in the US market whenever you can start doing so.

Word up
(Cash Rules Everything Around Me) Take you on a natural joint
(C.R.E.A.M. get the money) Here we here we go
(Dolla dolla bill y'all) Check this shit, yo!

EM Currency Risk

They say a picture is worth a thousand words; then a chart is probably worth a million words.

G-20 Countries Currencies vs USD vs S&P500  Source:   TradingView

G-20 Countries Currencies vs USD vs S&P500

Source: TradingView

The chart above shows that the majority of G-20 countries’ currencies weakened significantly against the USD since 2018 (and even further back), with the Japanese Yen (JPY) and Saudi Arabian Real being the only two currencies in the positives; and its only because the former is historically known as a safe-haven currency and the latter is pegged to the USD. If you zoom further back, emerging market currencies have been weakening against the USD despite the US printing more than $6 trillion since 2008. Whether you agree with the USD inflation narrative or not, its a fact that EM currencies have been weakening simply because of USD status as the world’s reserve currency with the majority of the global trades and debts being denominated in USD

Times and times again I’ve heard stories about how people diversify their portfolio with EM holdings to only see their returns getting offset by the currency depreciation. There are obviously ways to hedge this currency risk, but most retail investors won’t really know how to do it.

TL;DR

Too many people don’t understand the current market dynamic that has actually been happening since the financial crisis in 2008. Ever since the FED started doing quantitative easing (the act of printing money and buying back assets), opportunities in emerging markets’ publicly traded assets are greatly reduced (EM private market is a different story). Those who held cash throughout the years were absolutely destroyed in terms of relative return compared to the S&P500, and those who held EM currencies ended up even worse. Alas, most of the time, participating in the US market will be a better option as a retail trader unless if you have a clear informational edge or ground zero knowledge in a specific emerging market.

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