Hedge fund Vantage Point Asset Management is increasing its investments in Japanese stocks and the U.S. dollar, anticipating a significant victory for Donald Trump in the upcoming U.S. presidential election.
Strategic Investments Based on Trump’s Policies
According to Nick Ferres, the firm’s chief investment officer based in Singapore, these trades are based on the belief that a second term for Trump would support global economic growth and keep inflation high. Trump’s focus on lower taxes could lead to higher Treasury yields, which would strengthen the dollar and weaken the yen. This scenario typically favors Japanese stocks, as the country relies heavily on exports.
Ferres expressed confidence in Trump’s potential victory, stating, “It’s going to be a landslide.” He referenced favorable betting odds, recent voter registration data, and market trends, including rising bond yields and a stronger dollar, which align with this prediction.
Market Trends and Economic Indicators
Ferres noted that the recent increase in Treasury yields reflects expectations of inflation and economic growth. He explained that “the re-acceleration of inflation means a higher path of rates,” suggesting that the Federal Reserve may not cut rates further next year.
This year, yields on benchmark 10-year U.S. government bonds have risen by 39 basis points, while the Bloomberg dollar index has increased by 4%. In Japan, the yen has dropped 7.8% against the dollar, and the Topix stock index has gained 13%.
Portfolio Allocation and Performance
Vantage Point’s flagship Asia fund now allocates about 15% to a selection of Japanese stocks, which has been increased in recent weeks, and another 15% to the dollar-yen exchange rate. The hedge fund currently manages $1.5 billion in assets.
The Japanese yen started the year at around 140 per dollar and has since fallen to approximately 153. Ferres predicts that it could drop below 160 and potentially reach 200.
Vantage Point’s flagship fund has gained 20% year-to-date on a gross, unaudited basis. Although the fund does not follow a specific benchmark, it has outperformed the MSCI Emerging Markets Index by approximately 50% over the past three years.
Outlook on Trade Policies and Global Growth
Ferres minimized concerns about Trump’s potential for imposing high tariffs on China, suggesting that such threats would likely serve as negotiating tools in U.S.-China relations.
He also highlighted that Japanese stocks are closely tied to global economic trends, stating, “Japan has the highest beta to industrial production than any market other than Korea.” This correlation means that Japanese equities could benefit from a strengthening global economy under a Trump presidency. However, he also noted that they would not suffer significantly if Kamala Harris were to win.
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