Investors urged to secure against US crisis

Yasmine Raso

Senior Journalist, Financial Newswire

15 May 2023

deVere Group’s chief executive has warned investors to protect their investments with US-based exposures against the potential economic fallout from the nation’s debt crisis.

This comes after talks between both parties and the House and Senate leaders ended the week past with no agreement to raise the debt ceiling, with the possibility of the US defaulting as soon as 1 June.

“We can’t overstate the significant, far-reaching impact a default would have on the US and global economies. It would likely be worse than the 2008 crash,” Nigel Green said.

“As lawmakers on both sides of the aisle in Washington are standing firm on their respective positions in the debt ceiling argument, we believe that this will go right down to the wire.

“The debt ceiling crisis is putting further pressure on the dollar. Diversification across asset class, sector and regions is investors’ best weapon to ride out choppy waters.

“But considering the tightening squeeze on the dollar, investors should perhaps particularly ensure that their portfolios are properly diversified in terms of currencies, in order to mitigate risk and seize opportunity during these times of heightened volatility.

“Even if there is a last-minute agreement and a default is diverted, the drama will have eroded some of the global reserve currency’s credibility and reputation as a ‘safety asset’. And even if it is resolved, driving at full-speed closer and closer to the cliff edge is risky for markets. When it happened in 2011, it was the most turbulent week since 2008.”

The Democrats are instating on a “clean” growth to the debt ceiling without conditions to pay debts due to spending and tax cuts approved by Congress, while Republicans have maintained they will not authorise any further borrowing without an agreement to reduce spending.

Green said the crisis only adds to the volatility felt in markets and economic conditions after the US Federal Reserve hiked interest rates to its highest point in 16 years with a target range of five to 5.25 per cent.

“The failing Fed made another mistake with the latest interest rate hike, which could push the world’s largest economy not only into a short-term but a longer-term recession. Clearly, this would not only be a huge issue for the US, but the global economy too,” he said.

“We are three weeks away from a crisis that could undermine the role of the US at the centre of global finance and tip its economy into recession, negatively impacting economies the world over.”