According to Geoff Yu at BNY, global equity allocations have reached a record share of investment portfolios, with U.S. markets holding a dominant position in both equity and fixed-income holdings [1]. Specifically, the United States accounts for 64% of global equity holdings and 73% of fixed income holdings, underscoring the country's outsized influence in global asset allocation [1].
Yu notes that recent dollar-selling, attributed to equity rebalancing, represents a healthy correction rather than a reversal of the broader trend. He characterizes the ongoing rotation toward equities over the past three years as structural, despite acknowledging near-term downside risks to global equity allocations [1]. In the first two months of the year, markets were influenced by the 'debasement trade,' where falling U.S. real rates weakened Treasury demand and prompted increased dollar hedging [1].
For non-U.S. investors, Yu suggests that increasing dollar hedges is a more effective way to manage portfolio volatility than reducing U.S. allocations outright or shifting further into fixed income. He points out that credible alternatives to U.S. assets remain limited, and bonds are likely to remain under pressure until inflation declines enough for markets to anticipate the removal of further rate hikes [1].
Looking ahead, Yu expects central banks to pivot back toward growth at the earliest opportunity, with lower real rates likely to be part of that shift. This environment could support rotation into economies that benefit from a softer dollar, particularly emerging markets with less exposure to concentrated AI themes. However, he does not foresee a decisive swing back toward fixed income; instead, the more significant changes may occur within equities, with potential shifts in regional and sector allocations [1].
CONCLUSION
Global portfolios are experiencing a record allocation to equities, with U.S. assets maintaining a dominant role. While some short-term risks exist, the structural shift toward equities is expected to persist, with future changes likely to occur within regional and sector allocations rather than a major move back into fixed income.