The world’s biggest money manager is shorting the US dollar on expectations that unprecedented fiscal and monetary stimulus would prolong its losses — regardless of who wins the US election.
BlackRock Inc holds a “modest” short in the greenback against the likes of the Chinese yuan, Indian rupee and Indonesia rupiah, said Neeraj Seth, head of Asian credit for BlackRock in Singapore.
The three Asian nations are among those best positioned to benefit from a weakening US dollar as investors seek out higher-yielding assets and growth.
“My base case is that we still have at least one to three years of more moderate [US] dollar weakness on the cards — that’s not going to change,” Seth said in a telephone interview on Thursday last week. “Regardless of the election outcome, some of the policy actions have already happened.”
The US$7.3 trillion giant joins global peers including Goldman Sachs Group Inc and UBS Asset Management that favor selling the US dollar with just a week until the country’s presidential election.
BlackRock strategists on Monday downgraded their views on US Treasuries on growing likelihood of significant fiscal expansion under a unified Democratic government.
A Bloomberg gauge of the US dollar has fallen more than 1 percent this month as former US vice president Joe Biden, the Democratic presidential nominee, extended his lead in polls over US President Donald Trump.
The yuan has risen 1.4 percent against the US dollar and the rupiah has gained 1.5 percent, while the rupee is little changed.
The downtrend in the greenback might see a “temporary pause” depending on the election outcome, but its weakness is likely entrenched over the long term, Seth said.
“The [US] dollar still is on the expensive side from a fundamental standpoint. I don’t think that direction reverses or changes because of elections,” he added.
Regarding other asset classes, Seth said that there are three broad areas in Asia that look appealing — high yield, China credit and private credit.
“Asian high yield overall looks attractive on both a relative and absolute basis compared to US or Europe. We are also looking at illiquid opportunities in countries where there is a shortage of credit, but reasonable growth potential,” he said.
“In Indonesia, we do like the intermediate part of the curve, so maybe toward the 10-year. In the case of China the positioning is broader so it is across government bonds, banks, higher quality state-owned enterprises, some local government and credit exposure,” Seth said.
“For India, it is more toward the five-to-seven year part of the curve,” he added.
“Rather than take a lot of duration risk at these levels in US Treasuries, we are trying to overall look at portfolio structures, portfolio beta and cash levels,” Seth said.
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