AI Boom Masks Rising US Risk Premium: Nomura
The US dollar's strength may be hiding a risk premium that could become apparent if the AI-driven equity boom falters, according to Nomura's analysis. The AI revolution has caused global savings to remain concentrated in USD investments, despite eroding trust in US policy.
US public debt is at 100% of GDP and current account deficits are large, but global investors have not shown signs of retreating from USD assets. Instead, the AI boom has become a justification for the 'There Is No Alternative' (TINA) thesis, which has driven capital into US markets.
Nomura's simulations challenge this assumption, suggesting that even moderate percentage declines in foreign-owned US assets could outweigh declines in US-owned foreign assets, reducing NIIP liabilities and weakening the dollar. This dynamic is different from previous episodes when US investor repatriation acted as a stabilizing force.