Bernanke Stimulus Means U.S. Shares Lag Europe: Chart of the Day

The Federal Reserve’s pledge to buy more assets to shore up the economy is making European equities more lucrative for U.S. investors than domestic stocks.

The CHART OF THE DAY shows how U.S. and European investors fared since Fed Chairman Ben S. Bernanke said Aug. 27 the central bank “will do all that it can” to keep the recovery intact and may resort to buying securities, a strategy known as quantitative easing.

A U.S. investor buying the Euro Stoxx 50 Index made a 20 percent return up to the end of last week, compared with 13 percent from the Standard & Poor’s 500 Index. A Europe-based investor who bought U.S. stocks made 3 percent, trailing the 9.1 percent gain from local stocks. The dollar has slumped 9 percent against the euro in the same period as investors speculated that the Fed will announce more stimulus measures this week.

“While quantitative easing may boost asset prices in dollar terms, the hard-currency performance is set to lag,” David Shairp, global strategist at JPMorgan Asset Management, wrote in a report dated yesterday. “Aggressive expansion of central banks’ balance sheets represents a form of money illusion.” Hong Kong-based Shairp’s firm oversees $1.3 trillion.

The Fed is set to embark on an unprecedented second round of unconventional monetary easing, economists have said, as policy makers tomorrow end a two-day meeting. The result may be a cheaper dollar that boosts American exports but also makes U.S.-denominated assets less attractive overseas.

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