40% Of Global Institutional Investors Cut U.S. Exposure...The Quiet Spread Of "De-dollarization"

Nikkei Cites Morningstar Report
Tariff Policies and Trade Conflicts Trigger a "Money Move"
Investors Prefer Gold and the Swiss Franc as Alternatives

Global institutional investors have begun to reduce the share of U.S. assets in their portfolios. Analysts say uncertainty surrounding the Donald Trump administration's tariff policies and trade conflicts is triggering a money move.

Nihon Keizai Shimbun (Nikkei) reported this on the 11th, citing a report by U.S. research firm Morningstar. According to the report, which surveyed 500 global institutional investors, 40% of respondents said they had reduced, or would reduce going forward, their allocation to U.S. assets. As the most important factor in their investment strategies, 76% cited "U.S. tariff policies and trade frictions." This was followed by "overall U.S. government policies" and "currency fluctuations and dollar weakness."

A staff member is organizing U.S. dollar bills at the Counterfeit Response Center of Hana Bank in Jung-gu, Seoul. Recently, global foreign institutional investors have been moving toward de-dollarization, reducing their holdings of U.S. Treasury securities. Photo by Yonhap News.

European pension funds are already cutting their exposure. Danish pension fund AkademikerPension sold 100 million dollars worth of U.S. Treasuries at the end of last month. The move is analyzed as being influenced by tensions with the United States over Greenland. Alecta, the largest pension fund in Northern Europe, also said it had largely unwound its holdings of U.S. Treasuries last month, noting that "the predictability of U.S. policies is declining, while massive government fiscal deficits are occurring at the same time."

The global market is also changing. According to U.S. market research firm EPFR, the share of U.S. bonds in bond funds managed by global institutional investors fell from 50% at the end of 2021 to 42% recently. Among global investment institutions, the country that sold the most U.S. Treasuries between January and November last year was China, which offloaded 116.7 billion dollars. India and Brazil followed, according to the Institute of International Finance (IIF).

As alternative destinations to dollar assets, investors preferred gold, the Swiss franc, and emerging-market assets. The Investment Management Corporation of Ontario (IMCO), which manages Canadian public pensions, mentioned the yen, gold, and the Swiss franc as investment alternatives to the dollar in its annual report released at the end of last month. Valerie Baudson, Chief Executive Officer (CEO) of Amundi, Europe's largest asset management company, also said in an interview with the Financial Times (FT) on the 4th, "We are reducing our exposure to U.S. dollar assets and shifting into Europe and emerging markets." Since January last year, the dollar index has fallen 10%, while gold and the Swiss franc have risen by nearly 20% over the same period.

De-dollarization moves are also continuing in the public sector. According to U.S. Treasury Department data, U.S. Treasuries held by foreign public institutions have decreased by 570 billion dollars over the past five years. The U.S. decision to impose financial sanctions, including freezing dollar assets, following Russia's invasion of Ukraine has had an impact. Some analysts say foreign governments are consciously reducing their dependence on dollar assets due to awareness of sanctions risk.

Nikkei pointed out that the key variable for this trend will be "how the Trump administration, which is sensitive to markets, will respond."

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