Investors hold 64% of global equity allocations in US markets, reinforcing dollar dominance amid structural shifts away from bonds.
Global equity allocations have reached a record high, with US markets accounting for 64% of equity holdings and 73% of fixed income. This structural rotation away from bonds is expected to persist, sustaining upward pressure on the dollar due to lower hedge ratios for equities compared to fixed income assets.
Recent dollar-selling driven by equity rebalancing is viewed as a temporary correction, with limited credible alternatives to US assets. Bonds remain under pressure as inflation concerns delay expectations for rate cuts, while non-US investors prefer increasing dollar hedges over reducing US allocations outright.
Central banks are anticipated to prioritize growth support, potentially lowering real rates and reinforcing the equity rotation trend. The dominance of US assets in portfolios is unlikely to shift significantly without clearer signs of inflation softening.