De-dollarisation trend to continue, favouring Asian assets: Societe Generale

‘We acknowledge that US exceptionalism is diminishing and that de-dollarisation is under way,’ analysts say

The US dollar index dropped 11 per cent in the first six months, the worst start to a year since 1973. Photo: DPA

The rotation to emerging markets in Asia that spurred the US dollar’s worst performance in more than five decades will probably continue, as a de-dollarisation trend outweighs a record rally in US stocks, according to Societe Generale.

Global investors had turned cautious about their estimated US$62 trillion in dollar-based assets – equivalent to the size of the Nasdaq – as the Trump administration’s “reciprocal tariffs” eroded the status of the world’s reserve currency, analysts led by Frank Benzimra at the French bank said in a report on Friday. Also reducing the appeal of the dollar were a potential softening of US growth and the recent retreat in the price of crude oil, which is denominated in the US currency, according to the report.

“We acknowledge that US exceptionalism is diminishing and that de-dollarisation is under way,” said Benzimra, the bank’s Hong Kong-based head of Asian equity strategy. “As the resilience of the [US] economy is expected to wane, the risks to Treasury yields are skewed to the downside.”

Societe Generale’s call added to a drumbeat for selling US assets that started when the tariff war sowed global distrust in the dollar and a ballooning US budget deficit triggered currency debasement concerns. The pivot may have a profound impact on the global investment landscape, reversing years of outperformance by US assets.

The US dollar index dropped 11 per cent in the first six months, the worst start to a year since 1973. In Asia, the Taiwan dollar appreciated the most versus the US currency, with a 14 per cent gain. Japan’s yen strengthened 8.7 per cent, and South Korea’s won advanced 7.8 per cent.

The MSCI Asia-Pacific Index, a broad gauge of stock markets in the region, has risen 12 per cent this year, almost doubling the gain in the S&P 500.

“Contained inflation, benign growth and additional central banking easing in several [Asian] economies are supportive elements,” Benzimra said. On the equity side, May was an inflection point with positive flows, and June followed suit, he said.

Still, Benzimra said the argument against US assets would weaken if the US secured higher tariffs with Asian nations. President Donald Trump said this week that Vietnam agreed to a 20 per cent levy on its exports to the US and a 40 per cent tariff on trans-shipped goods. Trump also said that the US would send letters to its trading partners to hasten unilateral deals before a July 9 deadline.

A view shows the New York Stock Exchange’s Wall Street entrance in New York City on April 7, 2025. Photo: Reuters
A view shows the New York Stock Exchange’s Wall Street entrance in New York City on April 7, 2025. Photo: Reuters

The S&P 500 and the Nasdaq 100 both rose to all-time highs on Thursday after an official report showed that the US added more jobs than expected last month. While headline numbers were strong, wage growth slowed, labour force participation fell and half of the job gains came from government hiring, according to Stephen Innes, a managing partner at SPI Asset Management in Bangkok.

For China, Benzimra said that investors should keep an eye on the Politburo meeting later this month for clues on increased policy support.

“Export front-loading during the 90-day US-China tariff truce to mid-August suggests we may not see a sizeable weakening in economic momentum until the middle of the third quarter,” he said. “Therefore, Beijing will probably continue to withhold any significant increase in stimulus in the short term. China’s monetary and fiscal policy is expected to remain ‘reactive’.”

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