By Alice Gledhill, Julien Ponthus, and Masaki Kondo
For years, it was the money-minting trade for the investor set in London and Paris and Tokyo: Buy dollars and plow the proceeds into S&P 500 and Nasdaq stocks. Not only were US equity returns far superior to those generated at home, but they were magnified by the steady rise in the value of the dollar.
So when both parts of the trade suddenly blew up after President Donald Trump launched his global trade war, the pain mounted quickly. A 6% decline in the S&P 500 this year ballooned into a 14% wipeout for investors who measure their returns in euros and yen. The speed at which it has all unraveled, along with the constant zig-zagging from the White House, is unnerving investors who had counted on the US to be the ultimate safe haven and generator of outsized returns.
“It’s a double whammy,” said Benoit Peloille, chief investment officer at Natixis Wealth Management in Paris. “You lose on the equity and the currency at the same time.”
Even if Trump were to keep backpedaling and concede on the trade wars, the sheer chaos of the past month has exposed for many foreign investors the risks that come with funneling so much of their money into dollars. Many of them are rushing now to add currency hedges to an American equity portfolio that stood at some $18 trillion as of December, equal to nearly a fifth of all US stocks.
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