Hey there! Let's dive into the financial shake-up happening across the globe due to geopolitical realignment, shall we?
Emerging trends shaping the financial sector landscape
The world is undergoing some major geopolitical rearrangement, and it's no secret that this has been brewing for a spell, not just since Trump's second term. The USA, trying to maintain its global power status, has been taking on China with trade restrictions and tariffs, but so far, it seems these efforts have been in vain. On the other hand, the BRICS+ grouping, a nearly forgotten bunch, has found each other again, and Russia is making the most of this situation, gaining power and territory.
The freeze on around $300 billion in Russian foreign assets following the Ukraine attack has made countries outside the US's “friendship circle” think twice. Particularly central banks of emerging markets have been investing more in gold lately than in US dollars or Treasury bonds. Even Switzerland is seeing the benefits, with five-year government bond yields falling back into negative territory due to gold's price surge.
Mistrust towards the US is on the rise
The trend of moving away from the US dollar and US assets in general has amplified since the trade chaos caused by Trump earlier this year. As a result, the US dollar has weakened by around 10 percent against the euro, even though US Treasury bonds yield around two percentage points more than German bunds. The same goes for the stock markets—US stocks, once the clear favorites since the 2008 financial crisis, are falling behind in demand and performance rankings.
US stocks—not as invincible as they seem
ntv Fonds, Trump Pushes - Powell Waits When Will the Interest Rate Cut Come in the USA?—US stocks have increased by an incredible 650 percent in euros since 2008 and have been the clear winners since the financial crisis. However, the development of AI by DeepSeek, a Chinese company, casts doubts on the leadership of US tech giants and has caused a sudden revaluation discount. A first warning sign indeed.
Dollar devaluation and tax hikes on the horizon
Trump blames currency manipulations and unfair tax practices by many countries as the main reasons for the large US trade deficit. To counter this, he aims for a weaker US dollar (preferably through significantly lower interest rates) and higher taxation of foreign investors and companies. This is a tricky move, as the USA depends on foreign investors to finance its high public debt. It's almost madness from a financial perspective, as Trump should be encouraging investors to buy US Treasury bonds instead.
Say goodbye to MSCI World as a go-to investment
In the past ten to fifteen years, investments in the MSCI World ETF have been quite the catch for investors. But, thanks to the strong performance of US stocks, their weight in the global index has risen to over 70%. Diversification in the portfolio is now limited, so more and more investors are restructuring their portfolios, moving assets away from the US market into Europe and emerging markets. These regions have a noticeable positive impact on prices due to their smaller market size, and they tend to perform well during a weak US dollar.
In short, the geopolitical realignment is causing a shift in the global financial markets, challenging traditional investment practices. The US dollar, once a dominant player, is being tested, US stocks are facing disruption, and emerging markets are offering new opportunities. As investors re-strategize, they're diversifying into bonds, gold, and international stocks to minimize risks and capitalize on emerging trends.
The community and businesses are re-evaluating their investment strategies in light of the geopolitical realignment, as the previously dominant position of the US dollar and US stocks is being questioned. In response, they are investing more in personal-finance avenues such as gold and the bonds of emerging markets, as well as international stocks, to diversify their portfolios and capitalize on new opportunities that may arise from the changing global financial landscape.
Employment policies across various industries are likely to be affected by the shift in the financial markets, as corporations may re-allocate resources in response to the changing economic landscape. This could lead to job losses in certain sectors while creating new opportunities in others, necessitating the need for flexible and adaptable employment policies.
