On June 25, local time, Federal Reserve Governor Michelle Bowman said that there is no expected interest rate cut in 2024, postponing the expected rate cut to 2025.
This means that US dollar-denominated financial assets will remain at high interest rates throughout this year, and the dividends of Hong Kong insurance companies with US dollar assets as the investment target are expected to achieve good results.
Just last month, Karen Carniol-Tempur, co-CIO of Bridgewater, admitted that 80% of the world's cross-border savings eventually flowed into the US dollar.
She said that people are not buying dollar assets because they like the United States, but because they find that the only thing they can invest in in today's environment is the United States. There aren't that many high-quality financial products to choose from in this world.
The movement of the US dollar tells you that the demand to buy US assets is greater than the US need to buy financial assets from other countries.
On June 21, the central parity of the RMB against the US dollar was reported at 7.1196, a decrease of 4 points, hitting a new low in the past six months. As of the end of the day, USD/CNH was at 7.2613, close to the 2% range, and USD/CNH was at 7.2905, approaching the 7.3 mark. The Asian market is under pressure far beyond the renminbi. The yen fell below the 160-1 mark against the U.S. dollar on the 26th, setting a new record since December 1986. Traders generally believe that the Bank of Japan's delay in raising interest rates again will continue to weigh on the yen in the near term and will dampen sentiment in the overall Asian currency market.
It is expected that the US election in the second half of the year is approaching, and it will be difficult to substantially reduce the pressure on the Asian foreign exchange market.
Therefore, as long as you want to invest cross-border, the money ends up in US dollars, including US bonds, stocks and other types of financial assets. Money is smart, no matter how much it says, it is not practical to make money, and the ultimate factor in determining whether to invest or not is to make money.
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"De-dollar" or "dollar shortage"
In the past two years, many fragile countries that have lost too much dollar reserves have had to settle in other currencies, which has made many people excitedly exclaim that the end of the dollar system has come again, claiming that the world is "de-dollarizing" and a new monetary system is being established.
It's okay to be self-exalted, but don't take it seriously!
This is a one-sided, radical but not accurate view. A very simple phenomenon is enough to prove that it is not "de-dollarization", but "lack of dollars", that is, the US dollar index has remained high and maintained strong, and the proportion of the US dollar in international trade settlements and foreign exchange reserves has risen instead of falling in the past two years.
According to data released by SWIFT, the Association for Global Interbank Financial Telecommunication, in January 2023, the share of payments made by currencies in international trade was 40.12% in US dollars, and RMB ranked fifth with a share of 1.91%. In the same period of 2021, the US dollar accounted for 38.26% of international trade payments, and the RMB accounted for 2.42% of payments.
Suffice it to say, global financial markets are suffering from a force they are not betting on in 2024: a strong dollar is making a comeback and looks set to continue.
The Bloomberg dollar index has risen more than 4% this year, reflecting appreciation against all major developed and developing country currencies. According to the U.S. Commodity Futures Trading Commission, a popular trader sentiment indicator that was bearish at the start of the year has since turned to the most bullish since 2019.
Institutions such as Vanguard Group, the world's second-largest asset manager, are adjusting their investment strategies against the dollar, which is now expected to continue to strengthen. At the same time, the Wells Fargo Investment Institute abandoned its forecast for a weaker dollar by the end of the year, instead believing that the dollar's rally will continue into 2025.
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Benefits of holding US dollars
In the global economy, the US dollar occupies an irreplaceable position. As the world's main reserve currency and the core of international transactions, the stability and liquidity of the US dollar provides great convenience and security for global investors.
On this basis, it has become a wise choice to allocate assets through US dollar savings policies and enjoy the corresponding value dividends, especially in the context of the current uncertain global financial environment.
1. A safe haven for funds
The U.S. dollar has shown itself to be a safe haven in different economic periods around the world. In times of market turmoil, investors and financial institutions often move funds into US dollar assets as a way to avoid risk. This transfer not only protects capital, but in many cases increases it.
The U.S. dollar smile curve reflects the strengthening of the U.S. dollar during a recession or recovery. In the current international economic environment, the US dollar will be used as a safe asset to meet the hedging needs of global investors, which is one of the underlying logics of our allocation of US dollar assets.
2. Global reserve currency and high liquidity
According to the Bank for International Settlements, the U.S. dollar participates in about 90% of global foreign exchange transactions.
The US dollar is still in an absolute position in the international financial system and is also the main reserve currency of a large number of countries around the world. This status of the dollar is not accidental, but is the result of a combination of factors.
The popularity and acceptance of the U.S. dollar has benefited from the strength of the U.S. economy and the depth and breadth of its financial markets. Whether it's international trade, cross-border investment, or personal money transfers, the U.S. dollar provides a convenient and efficient service. The allocation of US dollar assets is conducive to enhancing the diversity of one's savings and the breadth of investment channels.
3. Avoid single currency risk
Asset allocation through the US dollar can effectively avoid the economic risks brought about by relying on a single currency. This diversification strategy helps stabilize the overall performance of the asset, especially when the local currency is under depreciation pressure.
At present, the international situation is complex and the currency exchange rate is unstable, and multi-currency asset allocation can effectively resist the potential risk of asset depreciation.
4. Participation in the global capital market
Holding U.S. dollars gives investors easy access to the U.S. market, the world's largest capital market, to find high-value targets to invest in.
In global economic activities, the US dollar has always been in a strong dominant position, and most of the different economies rely on the US dollar for transaction settlement in international trade activities. Therefore, US dollar assets facilitate the appreciation of our assets in different investment activities.
5. Low inflation rate and stability
The Fed has set a long-term inflation target of 2%, which provides predictability and stability for the pricing and long-term investment of dollar assets. The low inflation rate of the US dollar has helped maintain purchasing power and investment value compared to other currencies.
According to historical data analysis, the inflation rate of the renminbi before 2019 significantly exceeded that of the U.S. dollar. This is mainly due to the unique position of the US dollar that allows it to pass on the impact of inflation externally, thereby maintaining a high level of stability. Long-term allocation of US dollar assets can effectively hedge inflation risks and prevent asset appreciation from lagging behind inflation, which is a pragmatic and necessary strategic consideration in asset management.
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A better way to choose USD assets is Hong Kong insurance
Middle-class and high-net-worth individuals who are good at investing have long recognized the importance of the US dollar, so a major focus of overseas asset allocation is to allocate US dollar assets.
According to the 2021 China Private Wealth Report jointly released by China Merchants Bank and Bain & Company, high-net-worth clients choose to allocate 30% of their assets overseas. In 2019, it was 15%
Diversified asset allocation, domestic and foreign children's education, stable large-scale asset allocation, intergenerational inheritance arrangement, and global customized products and services occupied the top 5 in the needs of high-net-worth individuals in 2021.
This can also be well understood why Hong Kong insurance has been relatively popular in the past two years.
Because for the wealthy, property preservation is the top priority of family wealth management.
1. Hong Kong's insurance income is stable and high
Savings insurance in Hong Kong has become an investment choice for many people due to its stable and high return on investment. This is also an important motivation for people to buy insurance in Hong Kong, as it has a relatively high expected return, and in the long run, it can compound interest between 6%-7%! According to the official website, the fulfillment ratio of most insurance companies in Hong Kong is between 90% and 120%.
2. Hong Kong insurance has many functions
3. Overseas investment in Hong Kong insurance is easy to use
Hong Kong is widely regarded as the preferred destination for overseas asset allocation due to its convenient transportation and language barriers. In 2023, mainland customers invested HK$59 billion in insurance in Hong Kong, most of which was invested in endowment life insurance products.