How to invest with the weak dollar? Secondo Alessandro Fugnoli, Kairos strategist, we need to aim for the “diversification in the more aggressive sectors of the dollar area”, which are traditionally favored by the weakness of the US currency.
In the latest episode of his monthly podcast “Al Quarto Piano”, Fugnoli explains that, “as regards the bond part, it is better to favor high-yield securities in dollars, bonds from emerging countries in dollars and Tips (stocks linked to inflation), with the idea that a weak dollar will accelerate the recovery of inflation (a phenomenon that will not occur in the coming months, but strategically it is an idea that may make sense in the coming years)”.
Another very interesting market in which to invest in dollars “is that of raw material – continues Fugnoli – Either by purchasing raw materials directly or by buying shares of mining companies. This is because normally a weak dollar is strongly correlated with an appreciation of commodities, especially if we are, as now, in an early stage of the economic cycle”.
But dollars can be invested too on the stock in general, "and in particular - underlines the Kairos strategist again - on American securities exposed to the rest of the world, therefore generally exporting industries".
Finally, “they must be considered currencies that have the dollar as a reference point but which yield more than the greenback right now – notes Fugnoli – For example the yuan two-thirds of which is priced around the dollar and which has already appreciated in recent months against the dollar, but should continue, albeit to a lesser extent, in the coming months. The advantage of investing in Chinese government bonds is also the yield: in a period of generalized negative interest rates, the Chinese 3-year yield is around XNUMX%”.
WEAKNESS OF THE DOLLAR: REASONS AND PROSPECTS
As regards the analysis of the economic situation, Fugnoli notes that "for several weeks the dollar has been subject to very strong speculative downward pressure, with record bearish positions. This phenomenon is due to the perception of a structural overvaluation in recent years and the idea that the new administration will adopt an even more expansionary fiscal and monetary policy (as regards the Fed). compared to what we have seen so far, or in any case more expansive than that of the countries with which America is confronted, especially Europe”.
The weakness of the greenback "also has positive aspects for European portfolios - the expert goes on to explain - Because a weak dollar first of all stimulates growth in the United States, but also forces other countries to adopt expansionary measures to avoid excessive appreciation of their currency".
On the political side, “in the short term it will be important to understand whether the US Senate will remain Republican or switch to Democrats. In this second case, the market will have an even more expansive fiscal and monetary policy and therefore the dollar will weaken further”, concludes Fugnoli.
