(Bloomberg) -- From ditching US stocks for Chinese peers to buying the yen and the euro, traders are running for cover as they ponder how a US markets meltdown may unfold.
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Steady selling in US stocks turned into a stampede on Monday as recession jitters spread across Wall Street. Risk aversion spilled into Asia, and growing conviction that US exceptionalism is over spurred a rush into the relative safety of the yen, Australian government bonds and the offshore yuan.
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It’s been a dizzying turn of events for investors accustomed to years of US tech gains and a resurgent dollar. A $1.1 trillion selloff in the Nasdaq 100 Monday underscores how President Donald Trump’s America First policies have, paradoxically, spurred a shift away from US assets. The euro has jumped about 7% from a February low while a gauge of Chinese stocks in Hong Kong is up 20% this year.
“Markets right now are like Olympic-level tennis except we, traders, are the ball,” said Calvin Yeoh, portfolio manager at hedge fund Blue Edge Advisors Pte. in Singapore. Yeoh likes long-dated Treasuries and is bearish on US stocks, though “with moderate commitment” amid volatile markets.
A Bloomberg dollar gauge edged lower on Tuesday and Treasuries were mixed. Pierre Chartres at M&G Investments said government bonds in developed countries are a “good risk-off hedge.”
In Europe, a seismic shift in the region’s stance on defense spending — with Germany leading a push for billions of euros of investment — has reignited bets on steeper yield curves. In the FX market, it’s spurred upgrades on the euro’s path and has already pushed the currency to around $1.09, the highest since November.
“US exceptionalism is starting to unravel — you want to preserve capital in this environment,” said Kellie Wood, money manager at Schroders Plc that oversees over $1 trillion globally. The fund last month flipped from buying the dollar to favoring the yen and euro, and is bullish on short-dated Treasuries and Australian government debt, she said.
The Swedish krona has also benefitted from Germany’s plans to ramp up defense spending, given the nation’s military industry is seen as a major beneficiary of any funding increase. It’s up 7.5% against the dollar so far this month, the best-performing Group-of-10 currency.