Global capital flows and the great rotation into emerging markets
A structural reversal in global capital allocation away from US assets now appears to be underway. We expect this to weaken the US dollar and provide significant support to emerging markets, which are increasingly well-positioned to benefit from this rebalancing in global portfolio flows.
The world is overexposed to US assets. Since the global financial crisis in 2008, the allocation of US assets in global investment portfolios has increased rapidly, reaching extreme levels. Although this trend has been recognised as unsustainable for some time, a combination of key factors has continued to reinforce it. These include large fiscal deficits in the post-Covid period, persistent weakness in eurozone growth, the dominance of the US technology sector, and a prolonged period of elevated interest rates in the US. These dynamics pushed US equities higher and strengthened the dollar, despite the widening US twin deficits, leading to a deeply negative and expanding net international investment position.
Until now, no clear catalyst has emerged to reverse the trend of US dominance. The Trump administration has taken bold steps to recalibrate US trade and foreign policy, marking a potential turning point. Officials argue that a strong dollar and excessive trade openness have eroded US manufacturing and undermined the economic prospects of the country. This policy shift could catch global investors off guard, given the world's heavy exposure to US assets.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The South African
36 minutes ago
- The South African
School calendar: When does term 2 end?
Learners across South Africa will close their books for the second term on Friday, 27 June. The June-July holidays will span 24 days, including weekends, with schools reopening for the third term on Tuesday, 22 July. As schools prepare to close, President Cyril Ramaphosa turned his focus to youth employment, especially in education. During a visit to Pretoria on Tuesday, he addressed the impact of the Presidential Youth Employment Intervention and the Presidential Employment Stimulus, both of which support work opportunities at schools. 'It is a phenomenal programme that has been able to bring in more than two million young people since COVID times,' Ramaphosa said. 'We have seen how successful it was. It is an overarching programme that covers almost all our 25 000 schools.' Many of these young people have been placed in schools as education assistants, supporting teachers and gaining valuable experience. Ramaphosa praised the initiative's benefits for unemployed youth: 'We bring them into formal job situations, and they learn, gain knowledge, discipline and people skills.' While acknowledging the limited resources available to sustain longer-term youth programmes, Ramaphosa emphasised their lasting value. 'With the EPWP, we became trailblazers in many ways because a number of countries started to look at public employment and how we execute it,' he added. Ramaphosa also stressed the integrity of these programmes: 'There have never been funny processes; it has been flawless.' Let us know by leaving a comment below, or send a WhatsApp to 060 011 021 1. Subscribe to The South African website's newsletters and follow us on WhatsApp, Facebook, X and Bluesky for the latest news.
TimesLIVE
2 hours ago
- TimesLIVE
Trump says he may soon increase car tariffs to push more US production
US President Donald Trump on Thursday warned he may soon hike car tariffs, arguing that could prod carmakers to speed US investments. "I might go up with that tariff in the not too distant future," Trump said at a White House event. "The higher you go, the more likely it is they build a plant here." Carmakers have been pressing the White House to reduce the 25% tariffs Trump imposed on cars. The Detroit Three carmakers have criticised a deal that would cut tariffs on British car imports but not on Canada or Mexico production. Trump cited recent investment announcements, including GM saying this week it plans to invest $4bn (R71,882,393,200) in three US plants and move some SUV production from Mexico. He also noted a $21bn (R377,382,600,000) Hyundai investment announced in March, including a new US steel plant. "They wouldn't have invested 10c if we didn't have tariffs, including for manufacturing American steel, which is doing great," Trump said. Mexico said last month cars assembled in Mexico and exported to the US will face an average tariff of 15%, not 25%, because Washington is giving carmakers reductions for the value of US content. Carmakers are facing increasing cost pressures stemming from tariffs. In recent weeks, Ford Motor and Subaru of America have hiked prices on some models due to higher costs from Trump's tariffs. In May, Ford estimated tariffs would cost it about $1.5bn (R26,939,413,200) in adjusted earnings. GM said last month it had a tariff exposure of between $4bn (R71,882,393,200) and $5bn, including about $2bn (R35,942,920,000) on the more affordable vehicles GM imports from South Korea, where it makes entry-level Chevrolet and Buick models.
The Citizen
3 hours ago
- The Citizen
Trade policies past and present haunt South African industry
South Africa's past export subsidies hurt neighbours; today, global trade and weak infrastructure return the blow to local businesses. You have to hand it to Donald Trump: his 'Liberation Day' rampage on imposing tariffs on friend and foe alike focused the attention on international trade and its positives and negatives. If your country has a high-cost or low-productivity labour system – or both – you're always going to be vulnerable to those other nations that can produce the same goods cheaper. That's where tariffs come in: to protect a country – preserving businesses and jobs. If a company cannot compete with imported goods, then import duties and taxes will raise the prices of its competitors to the point where the playing field will be artificially levelled. On the other hand, governments can boost their exporters by putting in place subsidies, whether hidden or open. It is widely thought, in the West for example, that Chinese car exporters, particularly, are able to export their vehicles at comparatively low prices because of government support for businesses domestically. That's the main reason other Chinese products are gradually putting well-known names out of business – the latest being the planned closure of the Goodyear tyre factory in the Nelson Mandela Bay metro in the Eastern Cape. More than 900 workers have been hit with Section 189 retrenchment notices. Chinese competition is a major threat to local businesses, especially those in manufacturing… but it is hardly the only reason many industrialists are throwing in the towel. ALSO READ: Trump tariffs created unprecedented uncertainty — trade expert Nelson Mandela Bay, like many other towns and cities in South Africa, suffers from an ongoing collapse of services and infrastructure. In addition, the backlogs at ports in this country mean exporting is not a quick or simple process. Ironically, back in the '90s, long before the mainland Chinese exporters got a toehold in Africa, companies in this country help destroy industries in our neighbouring countries, thanks to subsidies introduced by Pretoria. Under the General Export Incentive Scheme (GEIS) of the early '90s, SA exporters were able to take full advantage of the end of trade restrictions which followed the release of Nelson Mandela. Subsidised South African exports of tyres, for example, forced the collapse and closure of the Dunlop tyre operation in Bulawayo, Zimbabwe. Battery exports did the same thing to factories in that city. Zimbabwe's David Whitehead Textiles, one of the biggest clothing makers in sub-Saharan Africa, was similarly affected. In many cases, Zimbabwean companies were hit by a double South African whammy: subsidised competitors entering their home markets and tariffs on their exports to South Africa. ALSO READ: 'We want to see Nigerian products on shelves of SA shops' – Ramaphosa [VIDEO] Again, ironically, Chinese imports later forced many of our clothing manufacturers to close. And now, a tyre factory has closed, too. I wonder what the jobless people in Bulawayo would say… Again, the irony is that many South Africans believe Robert Mugabe single-handedly destroyed Zimbabwe's economy and accelerated the flight of economic migrants to a better life south of the Limpopo. But, he had a little help… The GEIS-fuelled assault on our African neighbours was only the start: businesses, from Checkers to MTN set up shop across Africa, often squeezing out local competition because of their sophistication and financial backing. SA business did more damage to the countries of the former 'Front-line States' in five years than the apartheid defence force did in a decade. Trade can be a powerful weapon.
