JPMorgan Warns of the Declining Importance of the US Dollar
The US dollar has long been regarded as a reliable hedging instrument against fluctuations in global equity portfolios. However, JPMorgan currently emphasizes that the US dollar is losing importance, particularly due to an observed increase in positive correlation to global stock markets. This change is measured using the dollar index against a basket of currencies and the MSCI World Local Index. A positive correlation implies that both the US dollar and the stock markets tend to move in the same direction. As a result, the dollar is losing its diversification effect in portfolios.
Historical Perspective and Current Developments
After the COVID-19 pandemic, the correlation between the US dollar and stock markets was still negative, making the dollar an attractive means of diversification. Since the 1980s, there have been recurring phases where the dollar and stocks were negatively correlated. JPMorgan interprets the current trend towards neutral or slightly positive correlations more as a “normalization” rather than a new regime.
Relevance for European Investors
For investors in the German-speaking area holding substantial US stock positions, this development is particularly important. Almost 50% of investment fund assets in the Eurozone are invested in the US, making the diminishing effectiveness of the US dollar as a risk hedge especially relevant. This necessitates a reassessment of portfolio diversification strategies.
In summary, the US dollar appears less attractive as a diversification instrument, as it increasingly aligns with stock markets. JPMorgan sees this as a return to historical norms, prompting German-speaking investors to thoughtfully adjust their hedging approaches.