Morgan Stanley: Foreigners May Be Selling US Assets... But What Other "Safe-Havens" Are There?

By Vishwanath Tirupattur, global head of Quantitative Research at Morgan Stanley

The prospect of foreign investors reducing exposure to US assets amid concerns about the continued predominance of US Treasuries as a safe haven has been at the center of market debate over the last few weeks. Significant shifts in cross-asset correlations, particularly between US equities and USD, are adding to concerns. The correlations between US equities and FX are nearly two standard deviations above their average over the last five years (see Are Cross-Asset Correlations Broken?), with USD weakening as equities have sold off – a pattern more associated with emerging than developed markets. In our view, evolving market perceptions of the trajectory of the US economy and policymaking are taking the global economy and markets to unprecedented levels of uncertainty and challenging long-held assumptions about cross-asset relationships.