The greenback continues its ascent.
After a significant summer downturn, the US dollar has rebounded since the beginning of October, with its rally gaining momentum in November. This movement is driven by positive surprises in US economic data, while other economic blocs, particularly the eurozone, continue to struggle. As a result, investors are tempering their expectations of rate cuts for the dollar in 2025, in contrast to European central banks, which are expected to implement significant rate reductions to support growth. Another unexpected development has been Donald Trump's decisive victory in the US presidential election, which has not had the anticipated bearish effect on the dollar; quite the opposite, in fact. The president-elect's procyclical policies could further widen the growth and yield differentials in favor of the United States. We expect this favorable trend for the dollar to persist at least until Trump's inauguration at the end of January, at which point his tolerance for a strong dollar during his initial months in office will become clearer. In light of this, we are increasing our dollar allocation by 3% across CHF, EUR, and GBP investment grids by reducing hedging operations on the US currency.
Japan: the Topix seeks stability
After an exceptional first quarter marked by historic highs, Japan's stock market has shown signs of losing momentum. The market retreated after the Japanese benchmark briefly surpassed its 1989 record levels. Historic volatility in the yen and the Topix during August significantly dampened investors' initial optimism. The Japanese market's heavy reliance on yen fluctuations remains a persistent challenge. The currency’s trajectory, now more influenced by US Federal Reserve policies than those of the Bank of Japan (BoJ), adds an additional layer of uncertainty. This dynamic has contributed to the continued underperformance of the Topix compared to other Asian and global markets.
Trade tensions pose another risk for Japan, particularly due to its trade surplus with the United States, leaving it exposed to potential protectionist measures. A widespread increase in US tariffs could have a substantial impact on Japanese exports, with ripple effects on its listed companies and cyclical sectors.
However, there are emerging positive signals. The P/E ratio of Japanese equities has returned to attractive levels, dropping from over 16x in July to below 14x currently. Additionally, the yen's recent depreciation may boost earnings growth for export-oriented companies in the final quarter of the year and into 2025.
Corporate governance reforms, particularly more ambitious and tangible policies on share buybacks, further enhance the appeal of the Japanese market. These measures have exceeded expectations, underscoring the market’s structural improvements.
At this stage, stabilizing yen fluctuations and gaining clarity on tariff policies could refocus investor attention on fundamentals. In this context, the normalization of valuations presents attractive entry points, potentially rekindling the optimism seen earlier this year.
This week’s figure:
USD 100’000
Bitcoin is approaching the $100’000 mark, supported by expectations of a more favorable regulatory environment in the United States following Mr. Trump’s election. Recent positive signals, particularly from influential political advisors, could materialize with the appointment of a new SEC chairman in early 2025.
Author
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Ed Yau is an Asian market specialist with 20 years of experience in managing equity portfolios. He previously worked as Head of Research in several Hedge Funds in Switzerland and Singapore. An HES engineer by training, he also holds a degree from the University of Geneva and an MBA from the University of Chicago. He joined the Bank in 2018 and became a member of the investment committee, in charge of managing several thematic certificates and equity funds, as well as setting up ESG investments.
