For some people, it makes perfect sense to pack a bag and leave the good ol’ US for anywhere else in the world especially if November’s election did not go their way. For global investors, the instinct is similar. Shift a little at the margins, sprinkle a bit more into Europe or Asia, just in case. That is life in markets.
However, the idea that global investors and central banks are going to dump US assets en masse just because Trump? Dollar bears, of course, have been busy sounding the alarm. We have been warned that global equity investors are rebalancing out of US stocks into Europe, the Euro rallies, and the US dollar crashes.
Then reality steps in. The May Treasury International Capital System (TICS) data tells a very different story. Instead of dumping US assets, foreigners have been buying them at a record pace over the 12 months through May. Inflows into US stocks alone have been nothing short of spectacular.
Asian investors, in particular, are still on the US bandwagon. Over the three months to end-May, they scooped up USD63 billion of US stocks, the largest three-month purchase in over two years. The only meaningful sellers were Chinese investors, and even they were easily outshone by enthusiastic buyers in Japan and South Korea.
Today, Asian holdings of US equities stand at a record USD3.208 trillion. Japan leads with USD1.115 trillion, followed by Singapore at USD687 billion. Hardly a picture of capital flight.
Yes, the US dollar has had a rough patch this year. Call me an optimist or just a stubborn minority voice. I will stick with the greenback and US assets while the crowd frets. That said, my portfolios remain well-diversified. I never put all my fruit in one basket.
Before I hit the send button, for those eagerly calling for a crash in US Treasuries, be careful what you wish for. The nearly USD30 trillion Treasury market is not just another bond market, it is a behemoth.
It is bigger than the Chinese, Japanese, French, UK, and Italian government bond markets combined, and more than ten times the size of the German Bund market, the eurozone’s so‑called “premium safe‑haven” asset.