The U.S. Dollar And Equities: The End Of An Era? – August 3, 2020
The recent breakdown in the U.S. dollar has caught the attention of global investors, and has raised the question as to whether a change in a key long-term investment trend is unfolding. We think that such a shift is indeed underway.
A just-published report explored the potential for a broad-based rotation in relative performance away from U.S. leadership, including the currency and equity market. We anticipate that it will be a multi-year theme, which is likely to play out in waves rather than abruptly, and should benefit emerging Asia, the euro area, and eventually Japan. Key points from the report included:
The safe-haven appeal of U.S. assets is slowly eroding and will eventually cause a reduction in the premium they command. Near-term headwinds include the economic bump caused by the second COVID-19 wave and expected turmoil surrounding the upcoming Presidential election.
A broad-based and lasting rotation will take time to blossom. Investors will need to become more confident in the outlook for global export demand, which will be a slow and choppy process, and to become disillusioned with U.S. economic and political leadership.
The shift in leadership has begun in the currency market. U.S. equity dominance will also fade but this will take longer to play out, given that the U.S. has a disproportionate amount of the successful global information technology and communication services stocks.
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