‘Exodus' of US assets set to intensify, says strategist

Business Times

29-04-2025

GLOBAL investors are rotating out of US assets not because of uncertainty over tariffs, says strategist Marko Papic of BCA Research, but because non-US assets are more attractive, particularly as the US dollar is expected to weaken over time.
Papic wrote in a recent note: 'The big picture is that the market narrative of US exceptionalism is dead. So, it doesn't really matter what happens with the trade war. President Trump has catalysed what was always going to happen, which is the rotation of capital away from extremely expensive US.'
He maintains that the market story of 2025 is that 'global investors are using the catalyst and news flow of the trade war to lighten their exposure to US assets'. 'The trade war noise is providing cover for an absolute exodus out of the US.'
This is evident in the year-to-date underperformance of Nasdaq and S&P 500 relative to the rest of the world. The Nasdaq is down by 10 per cent and S&P 500 by 6 per cent. In contrast, MSCI ACWI ex-US is up by more than 7 per cent; MSCI Europe by 3 per cent; China by more than 9 per cent; and Asia ex-Japan by 1 per cent.
Papic is BCA Research chief strategist, whose analyses combine geopolitics and markets in a framework called GeoMacro. He was in Singapore last week for a conference by the Investment Management Association of Singapore, where he was on the podium to share his views on 'extracting geopolitical alpha'. He spoke to BT on the sidelines of the conference.
US dollar, assets to weaken
The US dollar is 'way too strong', he said, and could weaken by 30 to 50 per cent over the next five years. This would make US goods and services more attractive, and effectively rebalance trade for the US in a more 'gentlemanly' fashion than tariffs.
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'Americans will be able to say – look, we're more attractive. Investment and factories will naturally move (to the US). Everything that Trump wants to do via threats and aggression will happen in a gentlemanly way, because currency depreciation is an across-the-board gentleman's tariff. The reason that rivals and partners are not going to be mad is because it's not permanent. Currencies go up and down.'
He expects the value of US assets to deflate over the next five years. 'This doesn't mean the S&P 500 doesn't end the year positive; it may go up 7 or 10 per cent. But if the dollar declines by 7 per cent, in currency-adjusted returns, someone in Japan, Singapore or Europe would do better in other equity markets.
'Most investors, whether they're individuals or family offices or long-term pension funds, are up to their necks in US assets and US dollars… If you take some of the proceeds over the last five to 10 years and invest in foreign assets in a very diversified way, that will be the smartest thing to do over the next five years.'
Singapore's future role
Singapore, he observed, is feeling 'a lot of consternation' with the onslaught of tariffs and the trade war. But that consternation, he argued, is 'built on two false narratives'.
The first narrative is the belief that globalisation is ending. This, he argued, is not so. 'Exports as a percentage of global GDP have been stable at 30 per cent for the past seven years. That's not going away. Trump's actions are causing other countries to start redoubling on globalisation. Singapore will be fine.'
The second is that Singapore has traditionally played the role of helping to 'grease the wheels of US-China cooperation'. But Singapore, he said, should position itself as the 'financial capital of a multi-polar world'. 'That's where Singapore's long-term relationship with the US could be a detriment. Singapore may have to take a stand, or take no stand.'
He believes the future lies in facilitating capital in a 'non-aligned Global South', and 'whoever gets there faster wins'. He sees other financial centres competing for leadership in this, including India, Abu Dhabi and Hong Kong. The Global South refers to countries mainly in Asia, Africa and Latin America. 'The next 30 years are going to be about South to South… not so much goods but capital flows and savings. I think that's where Singapore's future is.'
In his GeoMacro reports, Papic has written on what he sees as an exodus out of US assets, as well as over-valuation and false narratives by Big Tech companies. One of the drivers of the funds outflow is the realisation that the 'fiscal gravy train' is slowing. Until recently the US stock market, especially tech stocks, has been buoyed by expectations of a generous fiscal package under Trump.
But Trump, he wrote, will increasingly face the 'tightening noose of material constraints'. One constraint is the US bond market, which has not rallied as much given the rising odds of a recession. If bond yields remain elevated, then Trump may not be able to follow through with expected tax cuts, as fiscal spending may be opposed by conservatives in the House.
'The material constraints against Trump are coming fast and hard. Bond yields are too high, fiscal conservatives in the House are revolting and negotiating trade with the entire world at the same time seems folly.'