It is particularly noteworthy that approximately one third of the estimated $1.7trn in overseas corporate cash holdings is held by five of the biggest US tech companies (Apple, Microsoft, Google, Cisco and Oracle), thus highlighting the sensitivity of the tech sector to this particular proposal.
US dollar remains vulnerable
This year, the return on the S&P 500 has been well into double figures as the index has continued to chart a series of all-time highs. But overseas investors in US equity markets have struggled as the US dollar has fallen in value.
Measured against a weighted aggregate of the trading partner currencies in the US (the so-called ‘trade-weighted’ or ‘effective’ index), the dollar reached a new low in mid-September some 10 per cent below where it started the year.
For sterling investors the S&P 500 index has returned less than 5 per cent this year, while for the euro based investor returns have been closer to zero.
The dollar’s weakness sits awkwardly with the buoyancy of the US economic picture and the stock market as typically, a strong economy will drive a strong currency.
So why has the dollar been weak?
Although the slide in US interest rate expectations this year has probably been a drag, the weakness of the dollar also appears to have reflected what is happening elsewhere in the world.
Currency values are, of course, a relative concept – one currency vying against another. The dollar will tend to do well when US economic growth expectations are driving ahead in the vanguard of the global growth dynamic or alternatively, when financial-sector risk aversion spikes.
Having said this, for all the positivity about the brightening US economic outlook, this uplift in activity is not a US-specific phenomenon. The lights are brightening all over the world.
There is a good chance that the broad-based global nature of the current upswing in economic activity is working to the dollar’s disadvantage. For one thing, it generates more dynamic investment opportunities outside of the US, as well as creating more supportive interest rate environments.
In particular, in contrast to widespread expectations that the sheer size of the Chinese economy would grind down its growth rate towards developed market levels, this economic mega-giant has astounded observers by its strength this year.
The Eurozone too, has markets with the strength (and breadth) of its recovery. The UK, however, is something of an exception of course, beset as it is by growth challenges related to Brexit at present.
