Big Mac Index: Why We Are Hungry for International Assets
To tell if a currency is undervalued/overvalued you can measure the cost of the same item in each country. One measure we use to do this is the “Big Mac Index”, which measures how much a McDonald’s Big Mac costs in each country. Back in 2008, when pundits were talking about how the BRICS (Brazil, Russia, India, China and South Africa) were taking over the world, it was much more expensive to buy a Big Mac in those countries compared to the United States. Investors flocking to the BRICS were paying more for similar assets than in the US and lost money as a result. Today the opposite is true. International currencies are more attractive compared to the dollar and this could be a tailwind for International assets.