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Foreign Equity Funds Fell In March And Quarter As Dollar Strengthened.(SERIES: MUTUAL FUND QUARTERLY)(IBD SPECIAL REPORT)
Byline: MURRAY COLEMAN
Rising interest rates and an improving dollar sent chills through international markets in March. That was enough to tip the scales for funds focused on China (-4.21% in March, -1.36% in first quarter) and Japan (-2.32% in the month, -2.06% in Q1).
The average world equity fund fell 3.19% in March and 4.37% in the first quarter, according to Lipper. By comparison, U.S. diversified equity funds lost 1.83% during the month and 2.52% in the quarter. Even though all major categories dipped into the red last month, Japan and China were the only major regions to finish as losers for the entire first quarter.
For most of 2005, the dollar has come on strong vs. its foreign rivals.
Most funds based in the U.S. that trade internationally and are open to retail investors convert foreign earnings back into dollars as a matter of routine. When the dollar is weak vs. key overseas currencies, foreign-minded investors get a boost. Last month, as in early 2004, that trend reversed course.
Foreign markets began pulling back even before the Fed hiked rates to 2.75% on March 22. But a seventh straight quarter-point raise was already priced into expectations, said fund managers. What added to foreign woes was a post-meeting policy statement.
The Fed warned of growing inflation pressures and building pricing power in U.S. markets.
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