Week 16: Episode 2194

Podcast summary for Episode 2194 in week 16.

We started this podcast by assessing why Western financial institutions are now seriously questioning the role of the USD and UST as the bedrock of the western financial system and are assessing other options. We then moved on to recent developments in the Chinese gold market, the rise of Hong Kong as a financial centre and how Japan and South Korea have signed up to utilising the Yuan as a funding currency. We concluded by assessing developments in West Asia to include Iran, Qatar and Syria.

PIMCO AND PENSION FUNDS

• Recent developments now show that Western financial institutions are beginning to express concerns about the stability and trustworthiness of the USD/UST, demonstrating a significant shift in sentiment.

• In one example, PIMCO, with $2tn in assets, drew parallels between recent US market behaviour and that of emerging markets (EMs), following simultaneous falls in US equities, the dollar, and treasuries, an unprecedented occurrence. PIMCO noted this resembled patterns typically associated with EMs.

• Furthermore, PIMCO criticised US protectionist trade policies, stating they were strengthening the argument for reducing exposure to the US dollar and long-term Treasury bonds, while increasing interest in foreign bond markets such as Europe and Japan. Separately, there is also some speculation about a shift into Chinese bonds, though it remains unclear how significant that move could be.

• This indicates a broader loss of confidence in US financial instruments and, in