China offers unique opportunity for portfolio diversification, Bridgewater’s Prince says
Global diversification is one of the most important opportunities for investors today, according to Bob Prince, co-chief investment officer at US hedge fund Bridgewater Associates. China offers a unique opportunity because its assets are less correlated with global markets.
“Geopolitics, protectionism and so forth are actually creating bigger differences in economic conditions across countries, which is not less efficient, it’s more inflationary,” he said in an interview during the 2024 Family Business Summit organised by the Post. “Rather than necessarily betting on rising inflation, investors should consider the possibility of a prolonged higher level of inflation, or in other words, a lower level of falling inflation.”
To build a resilient portfolio, investors should diversify across geographies, across industries and sectors, across asset classes, or “a combination of everything” to have a better balance of having assets that do well in rising inflation, Prince said. Instead, most investors’ portfolios are really positioned to benefit from lower inflation, he added.
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Donald Trump’s second term in the White House may unleash policies that are likely to roil global markets. During his election campaign, he promised to deport illegal immigrants and raise tariffs on Chinese exports, among others, which may lead to a trade war sequel.
A supporter of Donald Trump hugs a cardboard cut-out of Trump at a New York Young Republican Club watch party during the 2024 US presidential election, in New York City on November 6, 2024. Photo: Reuters alt=A supporter of Donald Trump hugs a cardboard cut-out of Trump at a New York Young Republican Club watch party during the 2024 US presidential election, in New York City on November 6, 2024. Photo: Reuters>
His likely policies are also stoking concerns among economists and financial advisers that tariffs will almost certainly hit US consumers and cause US inflation to accelerate, economists said. That raises doubts about how fast the Federal Reserve can cut interest rates in 2025.
Asia, particularly China, presents a unique diversification opportunity because unlike in North America and Europe, the Asian system and renminbi system are less correlated than the US dollar and euro, Prince said.
The world’s biggest hedge fund, founded by China bull Ray Dalio, managed about US$235 billion of assets across all strategies, according to a recent filing. Prince said the firm has US$7 billion of assets under management onshore in China, comprising Chinese government bonds, different commodities and a basket of stocks that represent the economy.
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“Asia does present a unique diversification opportunity, particularly China,” Prince said, adding that the country is an important market by the sheer size of its economy and its population. “It presents a unique diversification opportunity in relation to North America and Europe. I don’t know why it would not be investible.”
China’s stimulus blitz in late September was “obviously a favourable move”, but Prince said the risk of deflation is still a concern, with the level of consumption remaining too low. China’s retail sales posted strong growth in October on the back of the stimulus blitz.
Prince believes the level of spending is way too low to reach the nation’s around 5 per cent annual growth target, adding that not enough time has passed yet to see if the stimulus measures have had real impact on the economy yet.
“But probably more [stimulus] will be needed and my guess is that they’re just moving at a gradual pace to make sure that they do not overdo it.”
To underline Beijing’s confidence in Hong Kong’s battered market, China’s Vice-Premier He Lifeng is scheduled to lead a delegation of senior bankers and officials to Hong Kong this week for the third annual conference of global financiers.
Wu Qing, chairman of the China Securities Regulatory Commission, will also speak on a panel moderated by Eddie Yue Wai-man, the CEO of Hong Kong Monetary Authority.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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