"Buy assets, short currency": Investors are fervently pursuing US stocks and bonds, while frantically hedging against the risk of the US dollar.

The facts have proven that the concerns about the prevalent "selling American goods" in the market earlier this year were unnecessary. Global investors' true operational logic is closer to "hedging against America" - namely, while continuously buying American stocks and bonds, they hedge further devaluation risks of the US dollar through derivative instruments. According to data from Deutsche Bank, since the middle of this year, the inflow of funds into US assets with US dollar hedging through ETFs has surpassed non-hedged ETFs for the first time in a decade, and the bank emphasizes that this change in speed is "unprecedented". Laura Cooper, Global Investment Strategist at Nuveen in London, points out that the exceptionalism of the US market was once in jeopardy after Trump announced punitive tariffs in April, but has now undergone a reversal - the core strategy has shifted towards "avoiding exposure to the US dollar". This hedging operation involves shorting the world's major reserve currencies through derivatives, explaining why the phenomenon of the US stock market rising while the US dollar continues to hover around its lowest levels since 2022 coexists. The prospect of further interest rate cuts by the Federal Reserve reinforces this trend, as the rate cuts reduce the exchange rate risks for global investors holding US dollar assets. Sahil Mattani, director of the London research institute at Ninety One Asset Management, expects that the new wave of US dollar hedging could eventually reach $1 trillion, merely restoring the hedging ratios of the current global investment of over $30 trillion in US stocks and bonds to the levels of the past decade - during the period of US dollar appreciation and soaring stock market, many investors had reduced their hedging ratios due to the perception of "no need for protection". Banks such as Credit Suisse, Deutsche Bank, BNP Paribas, and France Industrial Bank generally believe that hedging operations will put pressure on the future trend of the US dollar. This pressure may prevent the US dollar from rebounding from its approximately 9% decline since 2025, especially in the context of the European Central Bank maintaining interest rates unchanged, and the Bank of Japan potentially raising interest rates within the year. The common hedging method used by overseas investors is to sell the US dollar forward to lock in exchange rates, which usually leads to greater selling pressure in the US dollar spot market, and trading costs mainly depend on the interest rate differential between the US dollar and other currencies. When the Trump tariff policy caused market turmoil in April, the US dollar's traditional role as a safe-haven asset was challenged. As the US stock market and bonds plummeted, the US dollar also weakened, indicating that fund managers were turning to safe-haven currencies such as the Swiss franc, euro, and Japanese yen. Subsequently, although other US assets (especially stocks) rebounded, the US dollar recorded its worst performance in the first half of the year since the 1970s, and the intensification of hedging activities magnified the weakness of the US dollar. The Bank for International Settlements pointed out that non-US investors' hedging operations were a "significant factor" in the US dollar weakening in April and May. Investor concerns about the Trump administration weakening the foundation of US dollar support are not only limited to the tariff policy. The unprecedented reshuffling of the Federal Reserve Board by President Trump and the push for rapid interest rate cuts, the dismissal of senior data collectors due to dissatisfaction with employment reports, deteriorating relationships with long-term allies, and increased crackdown on opposition and media have exacerbated market unease. Standard Bank strategist Steven Baro stated in a report, "If the market speculates that the Federal Reserve will stimulate the economy through interest rate cuts due to White House pressure, then the logic of betting on short-term returns of US stocks and bonds, while shorting the US dollar, becomes valid." Data from July shows that foreign investors' holdings of US Treasury bonds have reached a historic high, further confirming the preference for US bonds. Currently, overseas investors hold around $20 trillion in US stocks and $14 trillion in US bonds (including treasury bonds, mortgage-backed securities, and corporate bonds). Mattani cited academic research, showing that in recent years, a reduction of approximately 5 percentage points in the hedging ratio of US fixed income holdings and approximately 2 percentage points in the hedging ratio of stocks could result in approximately $1 trillion in US dollar foreign exchange trading. Due to the difficulty in tracking global cash flows, accurately measuring the scale of hedging activities is not easy - the daily trading volume in the foreign exchange market reaches $7.5 trillion, and there are often differences in valuations among institutions. According to data from Credit Suisse, the hedging ratio of US assets held by foreign investors such as mutual funds, pension funds, and insurance companies stabilized after declining in April, and is currently at around 56%, lower than the 70% level in the middle of 2023. Li Feirich, a strategist at the bank, emphasized, "Foreigners are unlikely to sell US assets, but are more likely to increase their hedging ratio, which is crucial for the trend of the US dollar." Not all fund managers are hedging on a large scale. Zhang Ruian, the head of fixed income at Taipei Citic Investments, stated that their actively managed fixed income products have not increased currency risks or hedging positions in US Treasury yields, as they perceive a low probability of a significant drop in the US dollar amid gradual interest rate cuts by the Federal Reserve. Although there are signs of a rebound in hedging activities, for many investors, this process will take several years to complete. However, pension funds in Canada, Europe, and Australia have signaled an increase in hedging. Alfonso Pecatilho, Chief Investment Officer at Amsterdam's Palinuro Capital, pointed out, "As investment committees study and approve hedging plans, such situations will increase." Stephane de Au, a Senior Portfolio Manager at Paris Eleva Capital, had already started hedging US stock investments earlier this year. He established hedging positions when the euro to US dollar exchange rate was at 1.05 (near its lowest level since the end of 2022), and the euro has since risen to above 1.17, becoming one of the G10 currencies with a double-digit increase against the US dollar this year. Part of de Au's logic is based on the expectation that the Trump administration will push for a devaluation of the US dollar - the company switched to European stocks at the end of 2024 and reduced its US stock holdings before the tariff announcement in April, later reinvesting in the US market, and currently plans to maintain its US dollar hedging positions, "as expected the US stock market will rise along with a weakening US dollar."