Investors who live outside the United States, with no tech giants listed in their domestic markets, are compelled to put their cash to work in US stocks if they want a piece of that global dominance.

As we can see from data compiled by the Federal Reserve, non-domestic holdings of U.S. stocks have increased in value by over $4 trillion since the start of the Covid pandemic, with $1.6 trillion of that increase coming from new cross-border inflows and the rest from investment returns. (This trend can be seen up to Q1 2022, the most recent data the Fed has published).

But that $12.5 trillion foreign-owned stock portfolio carries considerable currency risk. No more so when the dollar strengthens inexorably as it has done in the past 12 months, reaching a 20-year high on a trade-weighted basis. In our chart we plot the trade-weighted dollar index (DXY) alongside the Fed’s foreign equity holdings data.

The good news is that up to now, the (unhedged) return expressed in a non-US home currency will be greater than for dollar-based investors.