Agencies
A bruising rollercoaster ride for markets in the first 100 days of the Trump administration has seen some investors move away from American assets, but it remains to be seen whether policies have caused a sustained shift away from the United States.
The market has seen significant rallies fueled in part by trade negotiation optimism, but investors remain concerned about the longevity and strength of any bounce-back in asset prices. Some are diversifying to international assets or making sure they are not overweight US assets as they seek more certainty over policy.
“The question of whether this has caused irreversible damage to the US markets and economic system is the existential one, but we don’t yet have a long-term answer,” said Liz Ann Sonders, chief investment strategist, Charles Schwab & Co.
“We know that it’s done a tremendous amount of damage and that our partners are questioning whether we’re reliable when it comes to trade or other things.”
A recent moderation in rhetoric on trade has caused equities to rally back close to their April 2 level and a small rebound in the dollar.
Still, in the near-100 days since Trump’s Jan. 20 inauguration, the has fallen about 8 percent and the dollar index =USD has slid about 9 percent. April 30 will mark the 100th day of Trump’s presidency.
The volatility has come as investors fear that Trump’s overhaul of global trade may hurt the US economy, causing a rebalancing. Criticism of the US Federal Reserve chair Jerome Powell also caused a sharp sell-off as investors worried about Fed independence. Some also fear that there could be deeper damage.
“When you have a brand, you need to behave in a way that respects that brand,” Citadel’s founder and CEO Kenneth Griffin said at a Semafor conference on Wednesday, saying that the administration needs to be careful about potential damage to US Treasuries.
White House spokesperson Kush Desai said the Trump administration is committed to protecting the strength and power of the US dollar.
“Trillions in historic investment commitments since President Trump was elected from industry leaders including TSMC, Apple, and Roche demonstrate resounding confidence in the US economy and dollar under this administration,” Desai said.
Strategists have pointed to a mix of evidence for reallocations from US assets, although they differ in whether there will be an actual shift away from US hegemony.
Jens Nordvig, founder of Exante Data, said in a note on Thursday that piecing together a mosaic of information led him to conclude that a “structural shift in asset allocations is in motion” where investors around the world are “searching for alternative reserve currencies.”
While Nordvig does not predict that the US dollar will lose its reserve currency status, “it does mean that a long list of different types of investors will be looking to reduce USD exposure if they can find a way to do so.” For evidence of a trend in de-dollarization,
investors will be watching for any significant changes in the shares of global FX reserves held in dollars and the dollar’s share in global payments, though analysts and investors say it could take years to see conclusive evidence.
The share of US dollar holdings in global FX reserves - foreign assets held by various central banks - has fallen to 57.80 percent in the fourth quarter of 2024, down from 66 percent, 10 years ago, according to IMF data.
“An acceleration of geopolitical fracturing will, at the margin, persuade some central banks to speed up their diversification from the dollar,” said Gary Smith, client portfolio manager at Columbia Threadneedle Investments.
A recent selloff in the Treasury market, the bedrock of the global financial system, has raised concerns about selling by foreign investors - who hold some 30 percent of the $29 trillion US government bond market, although analysts say so far there is little evidence.
Oxford Economics said in a research note on Thursday that market moves showed a broader shift out of the US from “investors of all stripes.” Among those changing their strategies is Spencer Hakimian, CEO of Tolou Capital Management, a New York-based macro hedge fund.
His fund is increasing its allocation to gold and decreasing its allocation to long-term Treasuries because “we believe a crisis of confidence is now brewing for dollar-denominated safe haven assets.”
