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Global Macro: Funds Head Overseas to Flee U.S. Debt Uncertainty

The dollar's volatile sideways trade has pushed funds into foreign equities such as iShares MSCI EAFE (EFA) and iShares China Large-Cap (FXI) shown below.

Europe is perceived as the safer of the two economies right now between itself and the United States.

For this reason European currencies and equities have shown relative strength against all U.S. assets in recent weeks.

An interesting development on Monday was the breakaway strength of Chinese equities.

The index below highlights the strong uptrend from the week of October 7th till now.

Chinese economic data Friday night showed that exports vastly underperformed expectations. The hope for Chinese economic policy reform, however, boosted the Shanghai equity market Monday.

Coming up short on exports set China up to drop in U.S. markets Monday morning, which it did initially, but due to the lack of a debt deal, foreign markets received the strongest bid.

After the brief fall, the Chinese equity ETF rallied the entire day.

This highlights the potential damage U.S. assets could face with a perceived geopolitical risk environment in Washington.

As long as U.S. politicians remain a liability, foreign assets will strengthen and the U.S. dollar will be sold versus other currencies.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.
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