US Investors’ Overseas Interest Narrowing
We have long held the view that US investors’ global allocation is a big marginal driver for the dollar. Throughout the past decade, flows overseas both in the form of FDI and portfolio investment have managed to hold down the dollar’s value, exacerbated by policy perceptions. While calling for a secular ‘rebalancing’ on the back of the US recovery and EM adjustment is premature, some material trend shifts have started to develop, particularly in FDI. As FDI is often allocated with structural trends in mind, we believe US investors are now more willing to be ‘long the US’ rather than export capital. Yet, for the dollar to truly rally, US investors’ portfolio allocations need to follow FDI.
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