Global Investors' Dollar Exposure Could Trigger Selloff
Pension funds and insurers in markets such as Japan, Canada, and Taiwan have significantly reduced their hedges against foreign currency risks.
Global pension funds and insurance companies holding U.S. assets lack adequate protection against a weakening dollar. As of June 30, hedging ratios dropped to 41%, the lowest level seen since 2015.
Hedging Ratios Against Dollar Risk Decline
An examination of filings by globally active pension funds and insurance companies reveals that major holders of U.S. assets have very little protection against a weak dollar.
This situation brings the risk of sharper declines for the currency should market sentiment shift abruptly.
Lowest Level Since 2015
Investors in various markets, including Japan, Canada, and Taiwan, had hedged only 41% of their foreign currency exposures as of June 30.
This ratio marks the lowest level recorded since 2015, according to calculations across six markets where data is available.