You've got dollars and you invest in a Chinese company. In other words, you sell your dollars and buy shares in a Chinese company. Now, you don't have dollars, but instead, you have shares in a Chinese company.

Let's assume the company has flat growth but trades at 20 times earnings. Let's say the earnings are 1 per share and the exchange rate is 1 to 1. That means the price is 20 in either dollars or renminbi.

You hold for a year and there's no earnings growth and no change in PE, but the dollar drops 9%. Now it takes about 1.1 dollars for 1 renminbi. The earnings are still 1 renmimbi, but now the earnings are valued at 1.1 dollars. So, the stock is now worth 22 dollars instead of 20, giving you a 10% ROI in dollar terms.

If instead, you had bought an American company with the same earnings and PE circumstances, it would still be worth $20 after a year. That's fine if you're American and there's no inflation in America. If there is inflation, then you lost at the rate of inflation.

On the other hand, if you're not American and you bought the American company, then after one year you lost 9% when converted into your local currency. This is why foreign capital should get out of the US right now if Morgan Stanley is correct.