What happens to a stock portfolio if the dollar continues to depreciate?

MNSL answered one year ago …

It depends on what kinds of stocks are in your portfolio.

If we have export oriented stocks in our portfolio really we are going to benefit from depreciation of US Dollar. Export companies get a larger number of U.S. dollars when they convert from other world currencies. Their product make more competitive in international market.

If your portfolio is consist with companies who depend on imported raw materials then manufacturing cost will go higher due to decline of purchasing power of the US Dollar and will put pressure on their profit margins and bottom lines.

If your portfolio is not limited to in any one economic sector and have also diversified internationally and hold stock in companies that operate around the world, marketing worldwide then declining dollar will have both positive and negative effects on your portfolio.

Generally, export oriented companies do not like to see appreciation of their currency. They prefer depreciation of currency against other currencies to be competitive in international market. As a result of appreciation of local currencies in some countries few companies closed down their operations recently and shifted to countries like China, Vietnam and Thailand. Similarly, depreciation of dollar will help export oriented companies in USA to improve profit margin.

Under these circumstances if we have export oriented stocks really we will benefit from depreciation of US Dollar. On the other hand if we have import oriented stocks in our portfolio we will not get higher return. Import oriented companies will have to incur higher import cost and their profit margin will come down.

In some situation, change of currency movements makes companies extremely profitable. For example I have seen big impact on profit margin due to change of currency movement between US Dollar and Canadian Dollar at Alcan Packaging which was listed in New York Stock Exchange long ago.