Among the challenges resulting from the U.S.-China trade war is the impact on currencies.
“Broadly, the trade war’s been a negative for global currency opportunities,” said Richard Lawrence, senior vice-president of global fixed income at Brandywine Global Investment Management in Philadelphia, Pa., in an Oct. 16 interview.
Potential exceptions are owning the U.S. dollar, Japanese yen and Swiss franc — “the classic risk-off currencies,” Lawrence said.
A continuing trade war is weighing on business sentiment and impacting “the industrial side of the global economy,” he said, citing weakening economic indicators such as PMI (purchasing managers’ index) and exports. As a result, investors are flocking to safe-haven currencies.
Still, “There are some currencies that we find compellingly attractive right now,” said Lawrence, whose firm manages the Renaissance Global Bond Private Pool and the Renaissance Global Bond Fund. “But we would need the certainty of that macro environment and the resolution of the trade war to get really excited about taking up the exposure in some of these.”
He named the Korean won, Norwegian krone, Swedish krona and British pound. “Currency cheapness is definitely not something that’s been specific to emerging markets,” he said. “It’s been a broad-based phenomenon,” because of the strength of the U.S. dollar in the last year and a half.
Potential challenges to U.S.-dollar strength represent opportunities for undervalued currencies.
“A lot of those pillars of support for the U.S. dollar are now eroding,” Lawrence said, citing a Federal Reserve that has cut its benchmark interest rate three times this year and is now expanding its balance sheet. “The [U.S.] growth divergence with the rest of the world is starting to close,” he said.
A diminishing U.S. dollar, along with a trade war resolution, “would be good for unlocking the value in a number of those cheap currencies,” Lawrence said.
He also noted that, despite some weak economic indicators, a recession likely isn’t on the horizon.
The consumer has “continued to do the heavy lifting in the global economy, which is why we don’t think we’re going into a recession,” he said. “It’s been that combination of the global consumer, coupled with a coordinated global easing by central banks around the world.”
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