Investors have been shying away from companies that do a lot of their business abroad this year, opting for those with mostly US operations instead. You can see this playing out in the chart above, which shows the relative performance of an index of US companies with large international sales exposure (blue line) to one with predominantly domestic exposure (red). The two indexes began the year doing about as well as one another, but the former has been underperforming the latter by a wider and wider margin ever since.
The European economic slowdown and China’s Covid-related lockdowns have played a big part in this. But the main culprit is the strong US dollar: American companies’ international sales are worth less when they’re converted back into the currency, with the dollar index – which measures its value against a basket of foreign currencies – having climbed 15% in the past year. That’s mainly down to the Federal Reserve’s aggressive rate hiking campaign, which has made the dollar more appealing to international savers and investors.
And with the Fed expected to deliver another jumbo rate hike of 0.75 percentage points this week, the future doesn’t exactly look bright for companies with heavy overseas exposure. So you might want to steer clear of those companies – especially Big Tech, which collectively made 59% of their sales abroad in 2021…
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