The world still runs on the U.S. dollar
Since the pandemic, one-third of the world’s capital has flowed into the U.S., up from 18% pre-pandemic, making it the leading destination for foreign investments.
In contrast, China’s share of global capital inflows fell from 7% to 3%.
High U.S. interest rates and the perception of the U.S. as a safe investment have driven this shift.
Additionally, the U.S. economy has been more profitable than China’s for 15 years, bolstered by its leadership in oil and gas production, supply chain infrastructure, and AI investments.
This trend is expected to continue, attracting more investment to the U.S. dollar.
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According to the International Monetary Fund (“IMF”), one-third of the world’s capital has flowed into the U.S. since the pandemic…
Pre-pandemic, that number was just 18%.
In other words, the U.S. is growing its position as the leading destination for foreign investments.
And more foreign investment and capital inflows translate into more trust in the U.S. economy and its currency.
On the other hand, the U.S.’s biggest competitor is suffering from a lack of investment…
Over the same period, China’s share of global capital inflows fell from 7% to 3%.
One of the drivers behind the increase in capital flowing to the U.S.—and away from China—is interest rates.
U.S. interest rates are at their highest level in the past two decades. China, on the other hand, has been actively lowering its interest rates to revive the country’s economy.
Its one-year loan prime rate—the benchmark for corporate and consumer loans—is just 3.45%… down from above 4% pre-pandemic.
The U.S. government is still considered one of the safest investments in the world, so if investors can get a higher yield from a safer investment, that’s what they’re going to do.
Not to mention, investors know that U.S. corporations are still among the best in the world…
We can see this by looking at U.S. companies in aggregate versus Chinese companies.
Rather than looking at an individual company’s Uniform return on assets (“ROA”) like we normally do, we can combine the assets and returns of all public companies in a country to get a sense of how profitable the overall economy is.
Since 2009, aggregate Uniform ROA for U.S. companies has been higher than China’s companies.
Take a look…
The U.S. has been more profitable than China for 15 straight years… and it’s not slowing down anytime soon.
It has had some of its most profitable years ever since 2021—and it’s easy to see why…
For starters, the U.S. leads the world in oil and gas production. And more and more countries are relying on our energy industry as geopolitical tensions ramp up.
In addition to America’s energy dominance, it also heavily invests in its supply-chain infrastructure. U.S. companies are bringing their supply chains closer to home—in what we call the “supply-chain supercycle”—and it’s creating countless investment opportunities in the space.
Moreover, the U.S. is the world’s front-runner in artificial intelligence (“AI”) investments. In 2023, U.S. private investment in AI was nearly $68 billion… more than double that of the rest of the world’s investments combined.
AI in particular is a way for the American economy to stay on top… especially with companies like U.S. chip giant Nvidia (NVDA), which became the largest company on Earth last month.
Plus, the U.S. is still investing in AI. We’re spending billions of dollars on semiconductor plants… more data centers… and everything else that will continue to drive the AI boom.
All of this should bring even more investment to the U.S. dollar… not less.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research
