In a commentary on Monday, Swiss Baida asset management said it expected the strength of the US dollar to end in 2020 and put pressure on US stocks as the US economic growth slowdown and limited stimulus scope would be detrimental to the US dollar. The bank's model calculates that the US dollar is now overvalued by 20%, and the relevant premium is expected to gradually disappear in the next five years, which will benefit European and emerging market assets.
Another factor contributing to the weakness of the dollar, the bank said, was the worst current account and budget deficits in the United States among a large number of mature and emerging economies.
Luca Paolini, chief strategist at Baida asset management, commented that the business cycle indicator supports its view of dollar bearish, which expects global economic growth to slow slightly to about 2.7% next year. Growth will slow in most developed economies, especially in the United States.
The bank predicts that by 2020, the expansion rate of the United States will slow to 1.5%, the lowest in 10 years, and does not exclude the possibility of a very slight technical recession in the first half of the year. In contrast, the economies of emerging markets such as India, Brazil and Russia will accelerate.
According to the report, the economic growth gap between developed and emerging economies is expected to reach 340 basis points, a seven-year high. A slowdown in US growth will erase the advantages of the North American economy over Europe, thus benefiting European stocks and the euro.
As for inflation, which should continue to be contained, Baida asset management said it would allow major central banks to continue to implement monetary stimulus measures, albeit at a slower pace than in recent years. The bank expects central banks in the United States, Europe, Japan and China to increase liquidity by a total of $1 trillion next year, a remarkable amount, but 20 per cent less than the average injection in the past 11 years.
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