What a weak US dollar could mean for a portfolio

Key takeaways:

The depreciation of the US dollar (USD) has been one of the key factors driving asset class performance. The USD has been weakening since March 2020¹, and this has helped create opportunities for emerging market (EM) and Asian assets.
A bottom-up fundamental research approach can help identify quality Asian corporates and capture potential long-term investment opportunities.

What’s happening in the current market?

The USD has been on a downtrend since March 2020, with the USD index having dropped about 9% since then¹.

Why did the USD weaken?

What does a weak USD mean for investments²?

The depreciation of the USD is a key factor in driving asset class performance, but it isn’t the only reason. Hence, asset allocation decisions shouldn’t be made purely based on the strength or weakness of the greenback.

1. A weak USD generally coincides with Asian equities outperformance¹

A weak USD can generally create opportunities for risk assets, as this usually happens when broad-based risk appetite in the market increases and the global economy is in expansion. This is a relatively positive environment for EM and Asian assets, both in fixed income and equities.

Periods of USD weakness generally coincide with Asian equities outperformance¹ relative to developed markets.

Past performance is not a reliable indicator of current and future results. Provided for illustrative purposes only to demonstrate generic market trends.

2. Lower currency risks

A weak USD can help manage currency risks² when investing in emerging markets and Asia, allowing central banks to focus on growth instead of keeping interest rates high to defend their currencies.

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How we seek to capture Asia’s growth opportunities³?

The global public health crisis has accelerated some structural trends in Asia even as the region’s long-term growth trends remain generally intact. As global growth starts to recover, the economic fallout from the crisis is likely to persist.

Against this backdrop, how can investors capture the region’s growth opportunities while navigating potential bouts of volatility?

Capitalise on Asia’s long-term structural changes

Lifestyle upgrades: rising income is driving consumption demand

Demographic change: population structure transformation is creating broader investment opportunities

Financial deepening: regional economic development is bolstering demand for wealth management services

A high-conviction strategy with quality and growth

Quality: fundamental, bottom-up, research-driven approach

Growth: focuses on profitable companies with sustainable return potential and growth prospects

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Conclusion

A weak USD has helped create opportunities for EM and Asian assets. A bottom-up fundamental research focus can help identify quality Asian corporates and capture potential long-term investment opportunities.

Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice. Forecasts/ estimates may or may not come to pass.

1. Source: FactSet, MSCI, J.P. Morgan Asset Management, US Federal Reserve. AxJ = Asia ex-Japan; DM = Developed markets. *REER is the real effective exchange rate. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 18.08.2020. Indices do not include fees or operating expenses and are not available for actual investment.
2. Risk management does not imply elimination of risk.
3. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.

Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current and future results. Please refer to the offering document(s) for details, including the risk factors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.

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