Brendan Ahern, CIO at KraneShares, joins "Worldwide Exchange" to discuss tariff risks, dollar weakness, and why capital is shifting to Asian growth stocks as global investors rebalance exposure.

Washington

Brendan Ahern, Chief Investment Officer at KraneShares, explained that the recent depreciation of the US dollar has led to foreign investors withdrawing capital from US equities. Despite gains in US markets, currency losses have negatively affected non-US investors, prompting a shift of funds into Asian growth stocks, particularly in the technology sector.

Ahern also discussed the impact of new US tariffs on 14 countries, noting that while some companies may relocate operations to the US, the broader effect is a rebalancing of global investment. He emphasized the need for careful trade policy management to avoid escalating tensions into the services sector, which could have broader implications for US companies exporting services abroad.

Ahern: Weak dollar pushing foreign money out of U.S. equities

All right, why don't we start off with this, this new tariff announcement, the fact that there could be other announcements before August 1st. Again, it seems like a fluid deadline. What area of the emerging markets and frontier markets is the most sensitive to all this? Yeah, certainly I think, Frank, one area that it's not in the emerging markets, but certainly Japan, they've got a big election coming up. So I think there's gonna be some domestic pressure on conceding to President Trump. So Japan's probably in a little bit of a tougher position where I think in the broader emerging markets, particularly in Asia, the U.S. is such an important market that those global leaders, those local leaders are gonna play ball just because what sort of, they don't really have much of a choice. All right, so you're saying they don't have much of a choice. I think that's what the president hopes is the case in these active negotiations going on. I also wanna talk to you about the weaker dollar. I just mentioned a minute ago, Jeff Cox on cbc.com doing a great story, the dollar coming off its worst first half of the year in over 50 years. What does that softer dollar mean for some of these other economies out there? I wanna go past Japan, that's a developed economy, but some of these emerging and developing markets that a lot of investors have seen opportunities in in the first half of the year. Yeah, 100% Frank, I mean the significant outperformance over the last 16 years of U.S. equities was really aided by a very strong U.S. dollar from April of 2011 up until two years ago, the U.S. dollar index was up 55%. It's fallen 20% since then. So for foreign investors who have 17 trillion of capital invested in U.S. equities, the dollar's weakness is really weighing them, that if you're a Euro-denominated, a Yen-denominated, a Taiwanese dollar or Singapore dollar, all of these foreign investors are underweight, are losing money because of the dollar's depreciation. Even though U.S., the S&P 500 is up year to date, they're actually hanging a negative loss because of the dollar's depreciation. So I think that's part of what's coming, what we're seeing is some of that money coming out of U.S. equities from non-U.S. investors, and it's going back to work. And when it goes back to work, it's gonna go back into those growth stocks. And we're seeing that particularly in Asia, which has a large number of these growth stocks, these tech plays, which we hold in KEMQ, which is really what's been driving our outperformance year to date, versus not just particularly the U.S. market, but even against broader emerging markets. So I wanna go back to some of the countries that are facing these new tariffs. There's 14 countries that are facing these new tariffs. Pretty much going back to that April 2nd level before the tariff pause. Is there any winner in all this? We were just looking at the ETF that tracks South Korea. That was actually higher right now. Give me a sense. Can anybody actually win from all this? Does somebody benefit? Well, I think to the president's point, he's trying to bring jobs back to America. So I think for some of these companies, particularly the Asian automakers, they've already moved a lot of that to the United States. Maybe we'll see from South Korea, SK Hynix, the big semiconductor producer, maybe they'll do a deal like TSMC to actually build a factory here in the U.S. I wouldn't be surprised by such a move. But I think in general, the U.S. is a very important market for these countries. They gotta balance trade a little bit. I think the president has to be a little careful just because the U.S. is the largest exporter of services globally. So he can't overplay his hand because that could then affect a lot of U.S. companies that are selling services like software, finance, lawyers. A lot of intellectual property gets sold from the U.S. but because it's not put on a boat or a plane, it's not considered a good. So this is a goods trade war. And that's the balance that I think the president thus far has navigated. Making sure it doesn't expand into a services trade war where then some of these other countries have a little bit of a way to retaliate against U.S. companies.

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