Prepare for End of US Dollar Cycle, as Emerging Markets Rise: Rohit Goel, Breakout Capital
Feb 13, 2025
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Rohit Goel, a portfolio manager at Breakout Capital specializing in emerging markets, shares insights on the impending end of the US dollar cycle. He discusses how the dominance of the dollar and US assets is due for a reversal. Emerging markets like India and Greece are becoming increasingly competitive, signaling a shift in global growth dynamics. Goel also highlights the challenges facing big tech stocks, suggesting that the optimism surrounding them may be overly inflated as investment opportunities evolve towards more resilient markets.
The US dollar's dominance is nearing a cyclical peak, with historical patterns suggesting an impending downturn influenced by changing investor sentiments.
Emerging markets, particularly India and Greece, are set to outperform the US market due to improved fundamentals and significant foreign investments.
Deep dives
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Dollar Dominance and Its Future
The current dominance of the US dollar is projected to face a cyclical peak, with historical data indicating that the dollar has entered its 14th year of a bull market. Past trends show that significant downward corrections typically follow prolonged dollar appreciation, suggesting an imminent shift. Factors contributing to this potential decline include increased government spending and changing international investor sentiment. The discussion emphasizes that while diversification of currency reserves by other countries is evident, it does not yet threaten the dollar's status as the leading global reserve currency.
Emerging Markets Gaining Momentum
Emerging markets are positioned to potentially outperform the US market, driven by improved fundamentals and economic reforms over recent years. Countries like India and Greece have come under focus for their significant economic transformations and recovery efforts. The significant inflow of foreign investments into the US tech sector has left many emerging markets overlooked despite their readiness for growth. Analysts predict that in the next five years, a substantial majority of emerging markets will outperform the US on a per capita basis, reflecting a shifting tide in global economic dynamics.
Frontier Markets Show Promise
Frontier markets, including Nigeria and Sri Lanka, have shown resilience and potential for growth following significant leadership changes and policy reforms. These economies, which previously faced financial instability and high levels of debt, have started to stabilize due to corrective measures and supportive international financing like IMF programs. The evolving landscape indicates that there will be opportunities in areas previously ignored by global investors. While these markets maintain volatility, strategic investments can yield favorable returns as they recover and adjust their economic structures.
Rohit Goel of Breakout Capital joins the podcast to discuss his view that the boom in the US dollar (and in US dollar-denominated assets) will soon give way, to be replaced by a long-awaited bullish cycle in emerging markets. Content Highlights
Markets have grown accustomed to US dollar dominance and with it a surge in US assets, specifically stocks. That is due for a cyclical reversal (1:00);
There are three factors supporting US growth. One of them is almost certainly due to run its course (4:43);
The global economy revolves around the US consumer as driver of growth. But that too can change -- and other markets are better equipped to pick up the slack on their own (9:26);
Despite all this, the US dollar should maintain its status as reserve currency. However, its dominance is waning (14:55);
Background on the guest (23:28);
Big tech stocks have worked very well for over a decade. But things are shifting to eat into their cashflows and there are reasons to believe too much optimism could be priced in... (26:07);
The trend is for growth to originate elsewhere than US tech... (30:28);