With global uncertainty at its peak, markets are seeing unprecedented movements in asset allocation that could reshape investment strategies for years to come. Elias Haddad, global macro strategist at Brown Brothers Harriman discusses the nuanced terrain of US assets, emerging markets, and the eagerly anticipated hard data set to be published this June that could shed light on US market outflows.
The strategist looks at the signals behind the noise, and the outperformance of European stocks, and pinpoints which assets he sees as the “ultimate safe haven” for the ongoing market uncertainty.
Transcript
Jo Gallagher US assets and the dollar are experiencing a shift in global sentiment. Are you seeing material outflows to support this narrative?
Elias Haddad We haven’t seen any hard data to signal this shift away from US assets, but just judging from the performance in financial markets, particularly the outperformance in European equities relative to US stocks or the out performance in the euro relative to the dollar, that does seem to suggest there’s been a shift away for US assets notably towards the European assets. Moreover, you know, I look at survey data, the Bank of America, their release. Every month a global fund manager survey. And the latest one I believe was for May, it shows that exposure to U.S. Equities, they’re the most underweight since May 2023. In contrast, exposure to European equities is the most overweight since October 2017. So clearly, the survey, the performance of financial markets, suggest this shift away from U. S. Assets is materializing. Anecdotal evidence also suggests that big institutional investors are shifting away. I’m thinking, for instance, of Canada’s second largest pension fund, CDPQ, which recently said that they do plan to shift away some of their US allocation towards UK, Germany, and France. I think the April TIC data that will be released on June 18th will probably shed bit more light on this question. The Treasury International Capital data, that will be the hard data that we’ll look for to see if indeed there is this shift away from US assets towards other major economies. Because if you remember, back in April, we had some pretty big moves in financial market, actually some quite unusual moves, right? Where the dollar fell, equity markets in the US fell, and treasuries also fell. That’s an unusual trifecta in a heightened volatility environment. And that probably is a signal of a loss of confidence in US policymaking, whether on the trade, fiscal, or security front. And so I’ll be paying close attention to this data when it comes out.
Jo Gallagher How do you differentiate between what is noise and what is a signal? What data goes into informing your investment models?
Elias Haddad I guess it’s a combination of science and art. On the science front, I pay particular attention to what policymakers are saying. Central banks, especially through their comments and speeches, they tend to give some pretty good policy guidance. The monetary policy report from most major central banks also offers some good insights into which data to focus on, whether it’s consumption, inflation, employment. So, pay attention to what government central bank officials are saying. To have this clear understanding of what data matters. The art is experience. Twenty years experience in financial market, you’ll have a good sense as to what headline to focus on and what data to put more weight on. And I look at the current environment where uncertainty, trade-related uncertainty particularly is quite elevated. Measures of trade policy uncertainty at one point reached a record high back in April. That has since calmed down a little bit. But this high-level uncertainty makes it very difficult and very noisy to get a clear signal from the data. Now, luckily, the trade tension seems to have eased, at least, you know, it’s not worsening. And that has cleared a lot of the fog of uncertainty, making it easier to focus on the signals and what matters for the fundamental outlook.
Jo Gallagher With the rising risk of stagflation in the US, a weaker dollar and global tariff uncertainty, how can portfolio managers hedge against short and long-term risks?
Elias Haddad The simplest answer is gold, that’s your ultimate safe haven asset. It has proven over time that it can hold its value during wars and crises and it’s free from any direct link to any country’s economic policy. And I still think there’s plenty of room for central banks, notably China, to accumulate even more gold or diversify more of their reserves into gold. Gold makes up roughly 6% of their total reserve risk. The global average is closer to 25%. So there is room here for China to diversify some of their 3.1 trillion in reserves that will keep, I guess, the uptrend and the precious metal intact.
Jo Gallagher Thank you Elias for your insight and of course you for watching, this has been Trader TV This Week.
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