Dollar becoming less attractive for emerging market investors

By Al Mayadeen English
Source: Agencies
21 May 2023 15:39
5 Shares

The weaponization of the dollar by the US has been used effectively to sanction countries that defy Western hegemony.

The recent collapse of SVB and other banks in the US has made investments in dollar-denominated assets and treasury bonds less attractive for investors. (AFP)

An analysis issued by fund flow and asset allocation data provider EPFR Global has revealed that emerging market investors are incrementally moving away from dollar-denominated debt and assets and shifting towards local currency bonds as the safer options to park their assets.

According to results from the study, an estimated $2.65 billion has been withdrawn from primarily dollar-denominated assets between January and April of 2023. However, a net $5.23 billion was injected into local currency bond funds.

Observers say that the shift is attributed to attractive yields and falling inflation on local bond markets. Moreover, uncertainty surrounding the dollar and interest rate-related volatility has made it less attractive for investors.

The recent collapse of SVB and other banks has further made the currency and treasury bonds less attractive for investors.

Fidelity International emerging markets debt portfolio manager Paul Greer said the weakening demand for dollar-denominated debt and assets is expected to continue for the rest of the year.

ABP Invest chief investment officer Thanos Papasavvas says there has been a "clear divergence between emerging market local and hard currency bonds [typically dollars and other major Western currencies, ed.] over the past few quarters, with local currency debt looking more attractive on a fundamental and valuation basis."

This comes in light of serious concerns that the US may default on its debt of $31.8 trillion if Congress and the White House do not reach an agreement before the end of the month on federal spending and raising the debt ceiling.

On another note, recent news reports revealed that the BRICS group is currently working on creating a common currency in efforts to de-dollarize the global economy.

The weaponization of the dollar by US has historically been used to sanction countries that defy Western hegemony.

Earlier in the week, veteran US investor Jim Rogers told Sputnik that the dollar's as the global reserve currency is nearing its end as the US remains apathetic in regards to its own creditworthiness.

"Many people are starting to say: wait a minute, I don’t know if we want to use that money, because it will have a problem someday. But also, the world’s international currency is supposed to be completely neutral. Anybody can use it for anything [they] want. But now Washington is changing the rules. And if they get angry at you, they cut you off," Rogers explained. "Even America’s friends are worried that something could happen to them."