Today, 1 USD = 0.8 CHF. The exchange rate has been going down quite a lot in the last year.
Does a Swiss resident has more purchasing power in the US (or others countries) or does the inflation in the US make it a zero sum game?
Is there some data on this?
Purchasing power outside Switzerland- yes
Purchasing power within Switzerland can be measured via inflation metric
You take the US inflation rate and plot it against CHF USD and the difference is your rise in purchasing power.
Thanks, that’s what I’d intuitively guess, but specifically how does that impact us here in terms of investing, or do you consider purchasing power to include securities and other assets? Should a CHF investor worry that by buying into the USD dip they’re potentially shooting their foot in the future, when they’ll invariably need to convert USD to CHF, potentially losing money? I’m probably not articulating very well…
More probably idiotic questions: I’d long read that “US companies didn’t become better than ex-US companies in 2012-today, it is a combination of inflated valuations and devaluing of the dollar that pushed stock prices up”.
I don’t agree with the sentiment because it comes from a brigader for diversification on reddit, but I’d be keen for someone more knowledgeable than me to share some opinion on it.
well, you can measure a stock price in CHF over time to take out the CHF FX factor.
You need to differentiate two things
USD falling
US stocks falling
USD falling is more than just about stocks. It can be for variety of reasons (monetary policy, loss of US credibility, sell off in US assets and move to foreign assets, fx manipulation, inflation in US etc)
US stocks -: yes US stocks gained more than others due to valuation expansion. But I think earnings increase was also a partial reason. I don’t remember exactly how much was valuation expansion vs earnings growth. If valuations were to compress, US can end up underperforming
Now if CHF is strong and you can buy US stocks for cheap. It’s true. But it doesn’t necessarily mean they are worth the price. US stocks would need to deliver growth more than currency depreciation going forward to make them worth your purchase.
Historically buying US stocks was profitable for Swiss investors versus keeping money in cash and the equity returns more than compensated for the currency. Would this continue to happen going forward? Time will tell.
I wouldn’t try to guess what will happen in currency market. It’s very complex. So try to assume that market is pricing the currency correctly and it’s not a misprice
That’s the crux of it.
The reason the inflation (12 months change of the price level) has recently turned negative in Switzerland is that the imported goods become much (like 2+%) cheaper in CHF terms. So it looks like the answer is “yeah, man”.
I’m planning on importing a used car from the US, and the FX rate made this plan quite a lot more attractive.
