Global investors holding significant amounts of US dollars may face increasing risks, according to a recent report from UBS. The report suggests it might be time to consider diversifying into other currencies or assets.
The US dollar has been a popular choice due to strong US economic growth and high interest rates. However, the report indicates that market conditions are changing. These include slowing growth in the US, shifts in interest rate expectations, and global changes in capital flows.
UBS advises investors to assess their current US dollar allocations and consider the potential benefits and risks of increasing exposure to alternative currencies. If the dollar weakens, holding too much cash in it could reduce investment values, especially for those with expenses in other currencies.
Investors should review their financial needs and future expenses to determine the appropriate US dollar allocation in their portfolios. Matching assets to future liabilities can help manage risk and avoid unfavorable exchange rates. UBS suggests the euro as a safe and flexible option.
For stability, the Swiss franc and Japanese yen are considered safe but offer low returns. For higher returns, investors might consider currencies like the Australian dollar or emerging market currencies. Gold is also recommended as a long-term safe option. UBS recommends that investors act now, assess their US dollar exposure, and consider shifting to other currencies or assets to protect against potential losses.