There is still no agreement on whether Trump’s policies could trigger a foreign sell-off of dollar assets. Ultimately, it depends on whether global investors feel they have overindulged on US exposure. Phew! In a note that landed in my inbox, one bank suggests the serving size might be smaller than feared.
Oh yeah, some investors who are critical of Trump might be looking to move their assets out of the US. There is nothing wrong to reduce their dollar exposure as part of their global investment strategy. Does this really mean they are abandoning US assets entirely? I take my emotions out of the equation and based on what I see, I remain bullish on dollar assets.
I know what you are thinking. “Is this the end of the dollar? Not quite. The US dollar is not just another currency but part of a global financial system.
Here is a section:
JP Morgan’s latest research finds foreign allocations to US assets are far from excessive, casting doubt on the idea that overseas investors are dangerously overweight American markets.
“We are skeptical of the idea that foreign investors hold too much of US assets,” JPMorgan analysts said in a recent note, citing research showing foreign investors are surprisingly underweight US assets.
Despite the large dollar figures often cited, the bank notes that allocations to US assets typically stand at just 10–20% of the total financial assets of households outside the US. This is well below the US weight in global equity and bond indices, over 60% in the MSCI ACWI and about 50% for USD-denominated bonds. In other words, foreign investors are actually underweight US assets relative to global benchmarks.
There are outliers: Norway and Switzerland, whose sovereign wealth funds are overweight US assets due to their mandates. But as JPMorgan points out, “these two entities follow global index benchmarks, so they largely accept whatever weight on US assets markets set, rather than actively trying to diverge from market weights.” No major changes are anticipated in their allocations.