The Dollar’s Decline & Emerging Markets

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The American dollar, that most peculiar of currencies, finds itself in a state of… diminishment. Eleven percent it has fallen in the past year, a decline measured, as all declines must be, by an index. They call it the U.S. Dollar Index, or DXY, a designation as dry as dust motes dancing in a forgotten counting house. It gauges, with a solemnity bordering on the ridiculous, the dollar’s strength against a basket of currencies belonging to those nations with whom we deign to trade.

The reasons for this descent are, naturally, complicated. One suspects the hand of fate, or perhaps a particularly mischievous imp residing within the Federal Reserve’s vaults. But the official explanations involve policies emanating from the White House – pronouncements about Greenland, threats whispered like curses, and a fondness for tax cuts that appear to have been conceived in a fever dream. These policies, you see, frighten capital. It scurries away, seeking refuge in things solid and unchanging, like gold – a metal burdened with the weight of centuries and the anxieties of kings. And so, the dollar weakens, a slow leak in the treasury’s hull.

What is an investor to do in such times? To clutch pearls and lament the inevitable? No. There is opportunity, a glimmer of profit amidst the chaos. One might consider emerging markets. These lands, often dismissed as volatile and unpredictable, possess a peculiar resilience. When the dollar falters, they tend to… flourish. In 2025, while our currency languished, these markets rose a respectable 25.6%, leaving the S&P 500 trailing behind like a forgotten errand boy.

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A Weakening Currency & the Shifting Winds

A declining dollar is often a symptom, a feverish blush upon the face of global risk aversion. Investors, those restless spirits, begin to seek havens beyond our borders, in lands less… predictable. Money flows, like water finding its level, into these emerging markets, inflating their economies and, consequently, their stock exchanges. And, of course, there is the current administration, which appears to welcome this decline. The President, a man of… unique pronouncements, has declared his satisfaction with the dollar’s weakness. He finds it… “great.” A curious sentiment, wouldn’t you agree? As if a weakening foundation were a cause for celebration.

Then there is the matter of Mr. Powell’s tenure at the Federal Reserve, soon to draw to a close. A man of prudence, he has resisted the siren call of easy money. But whispers abound that his successor will be… more amenable to such temptations. Should these whispers prove true, the dollar’s decline could accelerate, as capital drifts toward lands offering higher rates of return. A predictable outcome, one might say, given the current climate of… unconventional policy.

The Vanguard FTSE Emerging Markets ETF (VWO) presents itself as a vessel for navigating these treacherous waters. It holds not the fortunes of kings, but the shares of some 6,200 companies – large, medium, and small – scattered across more than 20 emerging economies. The largest holdings include Taiwan Semiconductor Manufacturing (11%), Tencent Holdings (4.35%), Alibaba Group Holding (3%), and HDFC Bank (1.2%). A diversified portfolio, you see, like a peasant’s garden, carefully tended and shielded from the storms.

Chinese stocks constitute a quarter of the fund’s holdings, Taiwanese stocks a little less, Indian stocks a respectable 15%, and Brazilian stocks a modest 4%. The remainder is a motley collection of companies from Mexico, South Africa, Thailand, and other lands – a kaleidoscope of opportunity, if one dares to look closely.

Economic performance in these nations is, surprisingly, improving. Structural changes, like the slow turning of a great wheel, are bolstering growth. The International Monetary Fund recently revised its outlook upwards, predicting a 4.1% expansion. Much of this improvement, naturally, is attributable to a brighter forecast for China’s economy – a behemoth awakening from its slumber.

A Bargain in the East

Compared to the inflated valuations of U.S. stocks, emerging market equities appear… remarkably cheap. The forward price-to-earnings ratio stands at a mere 13.4, while the S&P 500 boasts a ratio of 22. A significant discrepancy, wouldn’t you agree? A bargain, in fact. Emerging market stocks, it seems, are poised to outperform their American counterparts once again. Now is the time to enter, before the tide turns and the opportunity slips away.

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2026-02-01 21:32