Singapore: The dollar’s rally may be approaching an end as pressure mounts on the US President Donald Trump to strike a trade deal with China, according to Brandywine Global Investment Management LLC.
The money manager, which oversees $72 billion, is banking on this view to short the greenback and buy some of the biggest casualties of the trade war, including the Australian dollar. The rationale? Trump will be compelled to make peace with Beijing to protect the interests of American consumers.
“The tariffs are essentially a tax on the US consumer," Richard Lawrence, a money manager at Brandywine Global, said in an interview. “We keep replaying this and come to the conclusion that we think Trump is motivated to do a deal. All of the traditional support pillars for US dollar outperformance seems to be eroding -- or they’re gone already."
Brandywine Global’s wager puts it at odds with a growing consensus that the worst of the trade war is yet to come, as Beijing and Washington harden their stance after Trump threatened to unleash more tariffs on Chinese goods. Treasury yields plumbed a 2017 low last week and investors including Goldman Sachs Asset Management have turned more cautious on emerging markets amid a broader flight to safety.
The dollar climbed to the year’s high after discussions between the world’s biggest economies suddenly broke down this month, when the US warned of more tariffs and blacklisted Huawei Technologies Co. Beijing said it would retaliate, prompting Wall Street banks including JPMorgan Chase and Co. to reassess the odds for a trade deal.
But in Brandywine Global’s longer-term view, Trump’s show of hostility may be part of a strategy to drum up support among conservative voters ahead of the 2020 US election.
“We think it’s another round of aggressive posturing," Lawrence said. “And as a value-based investor, we’re contrarian by nature -– we’re trying to buy discounted assets."
Trump said on Monday the US was “not ready" to make a trade deal with China, and that tariffs on Chinese goods “could go up very, very substantially, very easily."
Emerging Markets Shine
Brandywine Global favors bonds of higher-yielding emerging markets such as Indonesia, Brazil, South Africa, Malaysia, Mexico and Colombia. It’s underweight markets with very low or negative real yields including Japan.
The money manager also likes the Australian dollar, which has weakened versus most of its major peers in the past month and is trading below 70 US cents. The currency is poised to climb to 70 to 75 US cents in the next year as it’s undervalued and will gain some support from China’s demand for commodities, according to Lawrence.
The portfolio manager is deriving an average yield of around 3% to 6% from various funds consisting of long-dated Treasuries and high-yielding emerging-market debt.
“There will be a soft landing for the global economy, that’s the core view that all of our portfolios are positioned for right now," said Lawrence. “We think there’s sufficient policy stimulus with the Fed’s shift, the People’s Bank of China clearly in stimulative mode."
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.