1. Historical Patterns of the Dollar's Strong Cycles
Over the past 40 years, the dollar has gone through three complete strong-weak cycles. Each strong cycle lasted 7-10 years on average, with turning points typically confirmed by two signals: a peak in US interest rates and a recovery in overseas growth.
Both signals have shown preliminary signs recently. But history tells us: a turning point is not a single point but a bumpy range—before confirmation, reversals are common.
2. Two Implications for Emerging Markets
The first implication of a weaker dollar is that emerging market local-currency assets will appreciate passively, leaving room for valuation repair.
The second is that overseas capital has a need to reallocate. Over the past decade, the super-sucking effect of US dollars and US equities has caused sustained net outflows from emerging markets. Once reversed, low valuations plus capital inflows create a Davis double-play environment.
But a word of caution: emerging markets are highly divergent. Don't bet on "emerging markets" as a monolithic block; pick specific targets with solid fundamentals, stable institutions, and ongoing industrial upgrading.
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