Investors Seek Refuge Amid US Exceptionalism’s Decline

Cautious and Diversified, with an Eye on Asia

The turmoil and volatility in global financial markets, where trillions of dollars were wiped off US equities since "Liberation Day", are leading investors to lean towards the idea that American exceptionalism may be nearing its end. Earlier, the shock that Chinese startup DeepSeek delivered in January led the likes of JPMorgan Chase to issue a research report titled Is US Exceptionalism Here to Stay? on Feb 28.

JPMorgan’s stance has taken a downbeat turn, with its chief executive officer Jamie Dimon warning that President Donald Trump’s tariffs could push the American economy into recession. Swiss private bank Julius Baer told clients to take the opportunity to move out of American equities should prices rise.

"We recommend using any short-term strength in US equities over the next few weeks to sell and further diversify into non-US equities, such as Europe," said Philipp Lienhardt, head of equity research at Julius Baer, in an Apr 10 note.

Cautious and Diversified

Investment experts have maintained that staying cautious and diversified is still the best way to hedge one’s bets in the current uncertainty-fuelled climate. Despite the hit Asia is likely to take from the tariffs, Bill Maldonado, CEO of Eastspring Investments – which has US$258 billion in assets under management (AUM) – told The Business Times that the region is still the place to be.

"Tariffs are bad for the world, but they’re really bad for the United States. It’s the United States economy that will suffer the most now, if it really is the end of US exceptionalism, and that’s going to stop sucking in capital from around the world, where do you want to be?" said Maldonado.

What about China?

With the damage to American credibility and exceptionalism, Natixis Investment Managers said that investors could hold a more balanced view between the US and Europe. Nonetheless, Jack Janasiewicz, portfolio manager at the company, which has US$1.4 trillion in AUM, noted that the US consumer is still the world’s largest growth driver. Given these considerations, while Natixis "still prefer(s) to tilt towards US investment relative to Europe and Japan, that gap might close a bit given the recent development on both sides of the Atlantic".

As for Asia, Natixis prefers to keep investing in the region, noting that the situation remains fluid as it is unclear whether the tariffs are permanent. Zooming into China, Natixis would "look to keep exposure to a minimum in the near term", added Janasiewicz.

Bonds, Gold

Turning to asset classes, StanChart is reiterating its recommendations on investment-grade bonds and selective high-yield bonds, and gold. This is even as US Treasuries have been hit by fresh selling as investors rushed to accumulate cash, pushing bond yields up by the most on a weekly basis since 2013. Yields and prices move in opposite directions.

Tan Min Lan, head of the chief investment office, Asia-Pacific, at UBS Global Wealth Management, said the rally in bond yields "should offer respectable total return potential". Even in a downside scenario, 10-year Treasury yields could fall to 2.5 per cent, "offering potentially significant capital gains for investors".

UBS also favours gold, which soared past US$3,200 an ounce to an all-time high on Apr 11, buoyed by recession concerns. "We believe gold prices will remain well-supported by the uncertain trade and geopolitical backdrop as well as the potential for swifter rate cuts from the Fed, which lowers the opportunity cost of holding non-yielding assets," noted Tan.

Conclusion

In the current climate, it is essential for investors to stay cautious and diversified. While the US has been the world’s largest growth driver, the damage to American credibility and exceptionalism is leading investors to diversify their portfolios. Asia, particularly China, is still seen as a key region to invest in, despite the tariffs. Investment-grade bonds and selective high-yield bonds, as well as gold, are recommended asset classes.

FAQs

Q: What is American exceptionalism?
A: American exceptionalism refers to the idea that the United States is unique and superior to other countries, with a strong economy, political system, and cultural values.

Q: What is the impact of tariffs on the US economy?
A: Tariffs imposed by the US on other countries, such as China, could lead to a trade war, which could negatively impact the US economy, leading to recession.

Q: What are the recommended asset classes in this climate?
A: Investment-grade bonds, selective high-yield bonds, and gold are recommended asset classes for investors.

Q: Is it still a good time to invest in Asia?
A: Yes, Asia is still seen as a key region to invest in, despite the tariffs. The region is expected to continue to grow and attract investors.

Q: What is the impact of the US Federal Reserve’s rate cuts on gold prices?
A: Swifter rate cuts from the Fed could lower the opportunity cost of holding non-yielding assets, such as gold, leading to higher prices.