As locals exchange their money for dollars, presumably to purchase hot AI stocks, the artificially depreciating value of Asian currencies is a result of the growing popularity of the AI trade.
In a recent analysis shared with BourseWatch, Rory Green of TSLombard came to that conclusion, at least.
“AI is sucking in East Asian capital, which, in turn, is weakening local [currency] and, alongside wider global inflows to the U.S., is supporting the dollar, adding to outperformance of the trade,” Green stated in the research.
If nothing else, this finding would help address an issue that has been plaguing so-called macro investors for the entire year: What is the reason behind the difference between Japanese interest rates and the Japanese yen?
Although there have been other theories put up to explain the yen’s depreciation in the face of rising Japanese bond yields, Green noted that the most recent lows of the Japanese currency coincided with a record net portfolio outflow from Japanese equities portfolios. This indicates that Japanese investors were investing more money in overseas stocks as the yen declined. Green surmised that a big portion of this funding was being utilized to increase exposure to the AI investing theme, which is mostly manifesting in the American market.
“Mrs. Watanabe’s love of AI stocks is potentially the biggest factor in current Yen weakness,” Green stated. Japanese retail investors are referred to as “Mrs. Watanabe” by the press and financial industry.
According to Green, the Korean won may also be weakening due to a similar dynamic. Since the beginning of the fourth quarter, the dollar has strengthened by 4.8% against the won and 5.1% against the yen, according to FactSet data. Even though the euro (EURUSD) has gained 13.5% vs the dollar since the year began, the buck has only slightly depreciated against both.
