One of the side effects of this 2020 ASX bear market has been the collapse of our national currency – the Australian dollar.
For the last 6 months of 2019, the Aussie dollar was averaging around 69 US cents. Last week, we hit a near two-decade low of 55 US cents. Although the Aussie dollar has recovered slightly since then (going for around US 59 cents today), it's something of a game-changer for investing in certain ASX stocks and ETFs.
See, a low Australian dollar affects any company that either resides beyond our shores (relative to us Aussies) or buys and sells goods from overseas.
The falling dollar has benefitted any company that sells goods or services internationally, as they can sell that good or service for the same price in Australian dollars yet receive more cash due to the lower exchange rate. This is especially true for miners like BHP Group Ltd (ASX: BHP) or Newcrest Mining Limited (ASX: NCM).
Anyone who has held shares in US companies like Apple, Berkshire Hathaway or Amazon.com has also benefitted. Assuming our dollar is at parity with the US (like it was in 2013), an Apple share would be worth $250 in both currencies. Today, an Apple share is worth US$250, but $418 in our dollars.
Thus, anyone who's been holding US shares since 2013 or earlier would have seen significant gains in their portfolio just for this reason alone.
But here's the problem. This paradigm works in reverse too. And right now, the Australian dollar is well below its historical average pricing against the greenback.
It might go down even further from here, to be sure. But over the next few years, it's far more likely to revert to the historical mean and appreciate, at least in my opinion.
That means that any US shares or investments in exporting ASX companies in your portfolio are going to have a headwind on their valuation if this eventuates.
Much like the ASX, the US markets are also at significantly lower prices than they were a month or two ago. That might lead some investors to buy up US shares or US-focused exchange-traded funds like the iShares S&P 500 ETF (ASX: IVV) or the BetaShares Nasdaq 100 ETF (ASX: NDQ) – heavy in great companies like Apple, Alphabet (Google) and Amazon.
Foolish takeaway
There's nothing wrong with this strategy of course. I happen to think exposure to companies like these are a great idea for ASX investors. Just be wary that the currency gains international investors have enjoyed over the last few years won't last forever and will eventually turn against your favour, in all likelihood!
