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Wall Street Journal
06-04-2025
- Business
- Wall Street Journal
How Investing Will Change if the Dollar No Longer Rules the World
If you've been investing your savings for the past 15 years, there is a situation you've hardly ever encountered: the U.S. dollar getting structurally weaker. Given the fallout from President Trump's 'Liberation Day,' you may need to get used to it. Wall Street was caught off guard when the greenback dropped against major currencies following this past week's tariff news. Markets feared that protectionism could put an end to the U.S.'s economic dominance since the global financial crisis. International money managers, who had massively biased their holdings toward U.S. assets, are feeling the urge to find another source of high returns. American investors, long comfortable ignoring foreign stocks, may no longer have that luxury. 'We are working on the assumption that in the next five years the dollar is going to lose another 10% to 15%,' said Luca Paolini, chief strategist at Switzerland's Pictet Asset Management. To be sure, asset managers in many cases are making short-term, defensive moves to protect against a potential recession. It also follows a trend of money leaving the 'Magnificent Seven' stocks specifically—Apple, Microsoft, Alphabet, Meta Platforms, Nvidia, and Tesla—for reasons not fully related to Trump. These companies drove much of the exceptional returns of the past decade and a half, but their collective price/earnings ratio hit a staggering 46 times last December. At such a lofty level, it doesn't take much for a fall to ensue. Even excluding the Magnificent Seven, though, Americans who bought the rest of the S&P 500 15 years ago earned a total return of around 380%. Europeans who did the same, unhedged, earned about 490%—thanks to the dollar's more than 20% gain against the euro, according to FactSet. The reverse also holds: Eurozone equities returned about 220% in euros, but only 150% in dollars. Japanese equities tell a similar story—the Nikkei 225 gained 300% in yen, but just 160% in dollars. No wonder Americans haven't rushed to add these stocks to their 401(k)s. What is striking is that a stronger dollar should, mechanically, hurt U.S. stocks—by reducing the dollar value of overseas earnings—and help foreign ones. Historically, it has been better to buy the S&P 500 when the dollar was weakening. Over the past five years, that held true: Fed rate hikes strengthened the dollar while hurting equities. But in the seven years before Covid-19, the dollar and U.S. equities moved in sync. That was the heyday of the 'American exceptionalism trade,' when U.S. assets outperformed across the board—not just in tech. This included currency-sensitive sectors like industrials. Two forces helped drive this. One was the fracking boom, which made the U.S. largely energy self-sufficient, cutting corporate costs and turning the dollar into a kind of 'petrocurrency.' Investors learned in 2014 the counterintuitive lesson that the U.S. economy may actually suffer when crude prices nosedive, and benefit when they rise. Indeed, the other factor was that U.S. consumer spending was unrelenting, even at times when gas-pump prices increased. For years, it has been powered by government deficit spending, a tech sector exporting services globally at scale, and the wealth effects from a booming stock market. Most of that now risks being turned upside down, exposing investors to the prospect of falling equities alongside a weakening currency. Trump has pledged to plug the budget deficit, which could arguably weaken the dollar. Meanwhile, he has launched a tariff war that has tanked the equity market, triggered retaliation from China and may provoke European blowback against U.S. tech giants. The new regime could echo the early 2000s, when investors turned against both tech and U.S. stocks in the aftermath of the dot-com bubble. At the time, the dollar also had a positive correlation with equities, as capital flowed into the so-called Brics—Brazil, Russia, India, China, and South Africa. In a report to clients Friday, Jeff Schulze of ClearBridge Investments noted that international equities have historically picked up the slack when the S&P 500 lagged behind. In such cases, the MSCI EAFE and MSCI Emerging Markets indexes beat the benchmark U.S. index by an annualized average of 2.0 percentage points and 12.1 percentage points, respectively. A weaker dollar itself helps support the financial resilience of developing nations. Meanwhile, the European Union has rekindled investor hopes that it can close the growth gap with the U.S. through fiscal stimulus, industrial policy and energy independence. At the same time, this is nothing like the 2000s. The rest of the world is far more exposed to trade than the U.S.'s relatively closed economy, and will have to grapple with China rerouting a huge glut of cheap goods there. Another option for investors, then, is to remain in U.S. equities and hedge the currency risk—but that is expensive—or to broaden exposure to discounted 'value' stocks and try to identify potential long-term winners. An economy reshaped by Trump would imply more investment and less consumption. Since the only profitable way to onshore production—whether a Nike shoe or a General Motors SUV—is to use machines instead of labor, capital-goods manufacturers may eventually benefit. But they are also among the hardest hit by today's indiscriminate disruption to global supply chains. Given the complete lack of clarity, the only solution for those who still need the long-term upside of stocks may be to do all of it at the same time. Right now, diversification isn't just a strategy, it is a lifeline. Write to Jon Sindreu at
Yahoo
05-04-2025
- Business
- Yahoo
Emerging Markets Offer Safe Haven from Trump Tariffs: Swiss Analyst
In Pictet Asset Management's April barometer, titled "Emerging market assets offer refuge from Trump tariffs," Chief Strategist Luca Paolini argues that Trump's policies give emerging markets the upper hand as trade tensions escalate. The Geneva, Switzerland-based wealth-management firm has upgraded Chinese equities to overweight from neutral, citing positive signals from the domestic economy that outweigh concerns about Trump's tariffs. Investors seeking exposure to this trend might consider the iShares MSCI China ETF (MCHI). Meanwhile, European equities were downgraded to neutral from overweight following their strong rally. Pictet remained neutral on stocks, bonds and cash overall, but expressed a preference for emerging market bonds due to their growth prospects, solid global trade and attractive yields. The firm also maintained a positive stance on gold as a hedge against geopolitical tensions. For investors seeking this exposure, the SPDR Gold Trust (GLD) provides a direct investment vehicle. This strategic shift comes as U.S. growth is expected to slow to 2% in 2025, with businesses delaying investments due to trade policy uncertainty. In contrast, China's economy is projected to grow 5.2%, supported by strong industrial production, a stabilizing housing market, and ongoing fiscal and monetary stimulus. As Trump's tariff policies create volatility in developed markets, investors may find better opportunities in emerging economies that face less direct impact and offer stronger growth potential, according to the Swiss firm's analysis. Emerging economies are projected to grow 4.3% in 2025, outpacing developed markets at 1.6%, according to the report. The iShares MSCI Emerging Markets ex China ETF (EMXC) offers exposure to these markets while excluding China for investors who want emerging market exposure with reduced Chinese concentration. Pictet maintains overweight positions in several sectors expected to perform well despite trade tensions. Communication services remain attractive due to AI-driven growth potential, with the Communication Services Select Sector SPDR Fund (XLC) offering focused exposure. Financials could benefit from strong earnings and possible Trump-led deregulation, the Pictet report said. Utilities round out Pictet's favored sectors, with the iShares U.S. Utilities ETF (IDU) providing exposure to companies that offer defensive characteristics combined with long-term electricity demand growth. The report notes that Germany and the European Union's defense and infrastructure spending improve Europe's prospects, potentially offsetting some impacts from U.S. tariffs. However, the U.K. economy continues to struggle, likely prompting rate cuts from the Bank of England. In fixed-income markets, emerging market debt presents strong opportunities. With supportive interest rates, widening growth differentials and improving global trade, Pictet has taken an overweight stance on local currency government debt and corporate bonds from these regions. The implications of these trade tensions became evident in March when Trump's tariff policies triggered a selloff in U.S. equities, with the S&P 500 suffering its worst quarterly loss in three years. European stocks, however, outperformed the U.S. by a record margin, while emerging markets demonstrated resilience, benefiting from a weaker | © Copyright 2025 All rights reserved
Wall Street Journal
10-02-2025
- Business
- Wall Street Journal
欧州株、世界の上位に躍り出る
欧州経済は低迷が続く中、ドナルド・トランプ米大統領が関税の次のターゲットとして貿易依存度の高い同地域を名指ししており、状況は一段と悪化する恐れがある。それでも、欧州株は好調だ。 ドルに換算した独DAX指数は年初から9％超、仏CAC40指数は約8％上昇している。これはS&P500種指数の2.45％上昇を大きく上回っている。ダウ・ジョーンズ・マーケット・データによると、欧州の株価指数が年初来でこれほど大幅に米国の指数を上回るのは2015年以来だ。 Europe's economy is stuck in the doldrums and President Trump's threat to hit the trade-dependent region next with tariffs risks making things worse. Yet European stocks are on a hot streak. The German DAX has climbed more than 9% this year in dollar terms, and France's CAC 40 is up about 8%. That is well above the 2.45% gain in the S&P 500. European indexes haven't outpaced U.S. counterparts by such a wide mark at the start of a year since 2015, according to Dow Jones Market Data. Some of the world's best-performing large stocks this year include European banks like Société Générale and Banco Santander, and the luxury houses Burberry and Richemont. The enthusiasm comes at an unlikely time. The eurozone ended 2024 with zero economic growth in the fourth quarter, and Trump said this week that he would hit the European Union 'pretty soon' with tariffs, after initially focusing on Canada, Mexico and China. And yet, a confluence of factors is boosting European markets. Investors had expected Trump's return to the White House would cement U.S. stock outperformance. But that belief has been shaken, after the rise of Chinese artificial-intelligence upstart DeepSeek and lackluster earnings from heavyweights such as Alphabet and Microsoft. In turn, that has pushed investors to reconsider unloved markets like those in Europe and Asia. Meanwhile, the political, economic and profit outlook for Europe is improving, while hopes that Trump will negotiate a cease-fire between Ukraine and Russia have also boosted stocks, particularly in Eastern Europe. 'Europe was treated like it was almost uninvestable,' said Luca Paolini, chief strategist at Pictet Asset Management. 'The sentiment on European stocks was so bad, any single positive thing would have a significant impact.' One major draw of European indexes is that they look cheap versus U.S. counterparts. The S&P 500 trades at 22 times its projected earnings over the next 12 months, according to LSEG, compared with about 14 for the pan-continental Stoxx Europe 600 and 12 for U.K. stocks. While that partly reflects a different split of companies and growth profiles, the relative expensiveness of U.S. stocks makes it harder for them to keep rising, some investors say. Conversely, the cheapness of European stocks should make it easier for them to gain when the mood brightens. Some indexes have been packaged into U.S. exchange-traded funds, such as the iShares MSCI Eurozone ETF and the Vanguard FTSE Europe ETF. It helps that profit growth is picking up. Stoxx Europe 600 companies' per-share earnings are expected to grow 7.7% this year, according to FactSet, compared with a rise of just 2.6% in 2024. 'There are earnings prospects outside of the U.S. tech sector,' said Florian Ielpo, head of macro at Lombard Odier Investment Managers in Geneva. 'This doesn't mean U.S. equities are likely to do bad, it just means other stocks could be posting as-appealing returns.' The strength of the U.S. economy—and the dollar—is good news for many large European companies, many of whom get more revenue from the U.S. than they do in their home market. That means they are exposed to faster American growth, while a rising dollar makes those sales worth more when translated back into euros or pounds. Expectations that central banks in Europe will cut interest rates more aggressively than the Federal Reserve is another driver. The Bank of England and European Central Bank have cut interest rates in recent weeks, while the Fed held rates steady. Lower borrowing costs typically serve to shore up growth, and can pull more investors into the stock market. Another major storm cloud—political uncertainty—could also be abating. France's government this week survived a no-confidence vote, clearing a path to end its budget crisis. Meanwhile, Germany, whose government collapsed in November, will hold elections later this month. Investors hope Berlin could finally loosen conservative budget rules, unleashing new investment to reinvigorate its faltering economy. However, while Trump's tariff threats have been brushed off so far by investors, they remain a major risk for the European rally, said Altaf Kassam, Europe head of investment strategy and research at State Street Global Advisors. 'The market seems to be absolutely pricing everything as a negotiation tactic,' he said. 'There's every chance that Trump sets his sights on Europe next…and that would definitely set the rally back.' The rebound follows a long stretch of U.S. outperformance versus global markets that dates back to the global financial crisis. If an investor put $100 in the S&P 500 at the end of 2008 and reinvested dividends, it would be worth about $920 today, according to LSEG. The same amount invested in an MSCI index of European shares would now be worth about $339. Still, some investors doubt this marks an inflection point. 'The U.S. is still the place to be,' said Paolini of Pictet. 'It is difficult not to be invested in the U.S. today unless you can make the case that Europe and China will reaccelerate significantly.' —Krystal Hur contributed to this article. Write to Chelsey Dulaney at
