Investors Becoming More Concerned About Geopolitics

Summary

The video transcript discusses the growing significance of geopolitical risks in investment strategies, with experts like Ray Dalio emphasizing the potential for economic warfare to escalate into military conflict. The U.S. elections and the U.S.-China tensions are highlighted as critical concerns, with Dalio advocating for diversified investments in technology and asset classes. The impact of geopolitical events on global supply chains and the possibility of trade wars are also examined, illustrating the complexity and uncertainty in today's economic landscape.

Takeaways

• 🗳️ Election uncertainty can be a buying opportunity for value-minded investors and contrarians.
• 🌍 Geopolitical uncertainty is now a key feature of the economic and investment environment.
• 🇨🇳 Ray Dalio highlights US-China tensions and internal US political conflict as major risks.
• 💼 Investors should diversify their asset classes, countries, and currencies to mitigate risks.
• 🛡️ Economic warfare can precede military warfare, affecting investors with exposure to China.
• 🔍 Geopolitics is a filter for decision-making in business and investments.
• 📉 Political risks, such as election outcomes and geopolitical tensions, can impact markets.
• 🛠️ Alternatives and assets like Nvidia are seen as hedges against geopolitical risk.
• ⚠️ Clients are increasingly concerned about geopolitical risks, seeking safe financial centers and institutions.
• 🌐 Potential disruptions to supply chains are a concern due to geopolitical conflicts and trade wars.

Q & A

What is the current view on the impact of election uncertainty on investment opportunities?

The election uncertainty has traditionally been seen as a long-term buying opportunity, especially for value-minded investors or contrarians who can capitalize on significant price fluctuations.

How does Joe Little from HSBC Asset Management view the current geopolitical uncertainty in relation to economic and investment environments?

Joe Little suggests that the current geopolitical uncertainty is more of a feature rather than a bug in the economic and investment environment, indicating a shift from past perspectives.

What was Ray Dalio's perspective on the U.S. elections and their associated risks?

Ray Dalio highlighted the growing tensions between Washington and Beijing as critical issues for investors, with the potential for economic warfare to escalate to military warfare.

What does Dalio suggest about the role of internal U.S. politics and its impact on the upcoming elections?

Dalio points out that internal conflict within the U.S., especially disagreement between political parties on the election outcome, could be a significant factor, with a common unity against China emerging as a major risk.

According to Ray Dalio, what is China's position in the context of revolutionary new technology?

Dalio considers China to be one of the few big players in revolutionary new technology and notes that Chinese assets are attractively priced.

What advice does Dalio give regarding asset diversification?

Dalio advises investors to diversify across asset classes, countries, and currencies to mitigate risks.

What is the potential long-term implication of the one-China policy according to the transcript?

The transcript suggests that the one-China policy may not continue forever, which could impact investors with exposure to China.

How does the transcript describe the current geopolitical landscape affecting businesses and investors?

The transcript describes a scenario where geopolitics is a primary filter against which every investor and business is making decisions, with examples of companies like the Dutch and Japanese firms navigating complex international waters.

Outlines

00:00

🌍 Political Risks and Geopolitical Uncertainty

This paragraph discusses the long-term buying opportunities amidst political risks and election uncertainties, highlighting the view that geopolitical uncertainty has become a significant feature of the economic and investment environment. It includes insights from Joe Little of HSBC Asset Management and mentions Ray Dalio's comments on the risks posed by US-China tensions and internal US political conflicts. The paragraph also covers Dalio's stance on China’s attractive investment prospects despite potential conflicts over Taiwan.

05:03

📉 Trade Wars and Supply Chain Disruptions

This paragraph focuses on the potential disruptions to global supply chains due to rising geopolitical tensions, particularly in the South China Sea. It elaborates on the brewing trade wars, emphasizing the impact of tariffs on various goods and the significant surplus in China’s manufacturing exports. The paragraph also mentions the increasing tariffs on Chinese goods by countries like Latin America, Thailand, Saudi Arabia, South Korea, and India, and warns about the economic repercussions of these trade dynamics.

Keywords

💡Political Risks

Political risks refer to the potential for political events, actions, or conditions to have a negative impact on investments. In the video, political risks are highlighted as a significant factor for investors to consider, especially in the context of election uncertainties and geopolitical tensions. The script mentions the U.S. elections and the growing tensions between Washington and Beijing as critical issues that could affect investment decisions.

💡Geopolitical Uncertainty

Geopolitical uncertainty encompasses the unpredictability and instability arising from international political events or conflicts that can influence economic conditions and investment environments. The video emphasizes that geopolitical uncertainty has become a more prominent feature rather than an occasional issue, with implications for asset allocation and investment strategies, as discussed by Joe Little from HSBC Asset Management.

💡Asset Allocation

Asset allocation is the process of distributing investments across different asset classes such as stocks, bonds, and cash to optimize returns and manage risk. The script discusses the importance of considering geopolitical factors in asset allocation, as they can significantly influence investment returns and risks, as suggested by Ray Dalio's insights.

💡Economic Warfare

Economic warfare involves the use of economic means to weaken another country's economy, often as a precursor to military conflict. Ray Dalio, the founder of Bridgewater Associates, warns in the video that economic warfare can escalate into military warfare, indicating the severity of the current geopolitical tensions and their potential impact on global markets.

💡US-China Tension

US-China tension refers to the ongoing political, economic, and military disputes between the United States and China. The video script highlights this tension as a major concern for investors, with implications for trade, technology, and potential military conflict, as discussed by Jamie Lowe, the China correspondent.

💡Diversification

Diversification is an investment strategy that involves spreading investments across various asset classes, countries, and currencies to reduce risk. In the video, Ray Dalio emphasizes the importance of diversification in the face of geopolitical risks, suggesting that investors should not put all their assets in one place or currency to mitigate potential losses.

💡One-China Policy

The One-China Policy is a diplomatic acknowledgment that there is only one sovereign state called 'China,' which is a contentious issue, especially regarding Taiwan. The video script mentions that the One-China policy may not continue forever, suggesting potential geopolitical shifts that could affect investors with exposure to China.

💡Trade Barriers

Trade barriers are government-imposed restrictions on international trade, such as tariffs and quotas, which can affect the flow of goods and services between countries. The video discusses how trade barriers from the U.S. are causing a Chinese solar maker to halt production in Southeast Asia, illustrating the impact of geopolitical tensions on global trade.

💡Supply Chains

Supply chains are the networks of organizations, people, activities, information, and resources involved in producing and delivering a product or service. The video script mentions potential disruptions to supply chains due to geopolitical conflicts, such as the Gaza conflict and tensions in the South China Sea, which can have significant economic repercussions.

💡Tariffs

Tariffs are taxes imposed on imported or exported goods and services. The video script discusses how tariffs are being used as a tool in trade disputes, affecting various sectors, including manufacturing and high-tech industries like EVs and solar cells, and potentially leading to trade wars.

💡Hedging

Hedging is a risk management strategy used to offset potential losses by taking an opposite position in a related security, asset, or market.

Highlights

Election uncertainty as a long-term buying opportunity for value-minded investors and contrarians.

Geopolitical uncertainty becoming a feature rather than a bug in the economic and investment environment.

HSBC Asset Management's Joe Little discussing the rationale for considering geopolitics in asset allocation.

Ray Dalio's emphasis on the importance of U.S. elections and the growing tensions between Washington and Beijing for investors.

The potential for economic warfare to escalate into military warfare as highlighted by Dalio.

Dalio's continued bet on China as a major player in revolutionary new technology and attractively priced assets.

The necessity of diversification across asset classes, countries, and currencies according to Dalio.

The non-imminent threat of conflict over Taiwan but the potential end of the one-China policy.

The impact of American investors in China facing potential negative consequences from their government.

The increasing importance of geopolitics in investment and business decision-making.

Dutch and

Transcripts

Political risks. The election uncertainty has been a long

term buying opportunity, particularly for value minded investors or

contrarians who can take advantage of big lurches in prices.

My concern is that we've arrived at a slightly different situation today,

where geopolitical uncertainty is more of a feature of the economic and

investment environment rather than a rather than a bug.

Joe Little. They're out of HSBC Asset Management.

So he was here about an hour back, just laying out really the rationale behind

why perhaps now geopolitics is something to certainly consider as you allocate

your your assets. Yeah, And we heard that not just from

Ray Dalio, what you heard at the wealth summit yesterday when you were there as

well. But let's talk a bit more about what Ray

Dalio did say. He's talking about U.S.

elections and the risks around there. And the growing tensions between

Washington and Beijing are among the most critical issues right now for

investors. The Bridgewater Associates founder told

a Hong Kong forum that economic warfare can lead to military warfare.

For more, we're joined by our China correspondent, Jamie Lowe.

Tell us a bit more about what Dalio said.

Yeah, I mean, geopolitics, it was like at the forefront of two different

economic conferences yesterday that was held here in Hong Kong.

So Ray Dalio was talking about how internal politics, internal conflict in

the U.S. could be a very big factor, especially

with the elections coming up. If both political parties cannot agree

on the outcome of the election, except, of course, the common unity against

China. That is a major risk, especially with

the US-China tension. And he's not you know, he's still

putting his bet on China, though. He talked about how China is one of the

few countries that are very is a big player when it comes to revolutionary

new technology. And that says in China are very

attractively priced. But you have to diversify everything,

your asset classes, your countries, your currencies.

He also talked about how although a conflict with China over Taiwan is not

an imminent threat, but the one-China policy may not continue forever.

And so investors who have exposure to China could be affected.

Have a listen to what he said. Economic warfare precedes military

warfare. American investors investing in China

could experience from their government negative consequences for that.

And then there's also the worry from that that the Chinese side could make

that challenging. Yeah.

And geopolitics now is is that filter that every investor and business is kind

of making their decision against because I mean if you talk about prime example

today the Dutch and Taiwanese chipmaker plans to open up a plant in Singapore

that's all about hedging their risks. And also these so-called neutral

countries in Southeast Asia are also in the crosshairs, with the Chinese solar

maker planning to halt production in Southeast Asia because of these trade

barriers from the US as well. So it's really picking up and I think

you make a very good point, right? So you look at the assets that are doing

well. So in video that's one, you know, Joel,

Joe Little, we were talking earlier, right.

You know, this I think is a way that people are hedging against the

geopolitical risk. We were speaking with Ben Wei yesterday

out of Macquarie. Their longer term outlook allows them to

be agnostic to political cycles somewhat.

So alternatives are doing well. And you mentioned, of course, these two

conferences. I was there yesterday at the at the

Wells Forum and interestingly enough, we wanted everyone wanted to talk about

something else, but almost every panel brought up geopolitics as a key risk.

In fact, let's let's hear from some of those key voices, of course, that we

heard from our wealth summit yesterday. Geopolitical risks and the possibility

of a tail risk event has gone up dramatically.

So I believe that, yes, and as investors, we should not ignore this.

The biggest question for you as an investor is can I hedge against it?

And unfortunately, there the answer normally is no, because it's either too

expensive, you miss out on the upside. So what you can't and impossible to

time. It is impossible to time.

The only thing you can do is prepare. Do not try to predict.

Geopolitics are definitely a big concern for for all trusts, not just in Asia,

but across the world. I think the conflict in Europe, the

conflict in the Middle East and the superpower tensions are definitely

leading to clients being concerned. That concern is leading clients to look

for the safest and strongest financial centers, but also the safest and

strongest financial institutions. Yeah.

And we're you know, we're only in June and we're not this this year if

elections isn't over. I mean, yeah, yeah.

Elections play a huge part as well. We already see how it's shaping markets,

especially with Modi's election. You know, exit polls missing the mark

and then he lost the majority. It's triggering a slump in markets and

then Mexico as well, with the landslide victory of the ruling party raising

concerns of increased state control. And then you have all these conflicts

everywhere, it seems, the Gaza conflict and then Ukraine and potential tension

in South China Sea where much of the Wall Street passes through.

So all these are potential disruptions to supply chains.

So you're talking about maybe potentially two different trade wars

that are going on right now. If it's higher manufacturing, Certainly

we talk about that a lot. Even in the low tech exports, you're

starting to see that. What are we seeing there?

Yeah, I think that's something important to point out.

It feels like something quietly brewing because there's been a lot of focus

right now on all these tariffs on the new growth drivers, your EVs, your solar

cells, your batteries. But China has been also ramping up a

lot, a huge surplus, near record surplus on all manufacturing goods.

And I'm talking about the traditional industries like your steel, your animal

feed. There's also their exports of soybean

had hit nearly five times of last year in the first four months of this year.

And China traditionally is an exporter of is an importer of soybeans.

So that's really speaking to how all these goods are.

You know, it's very hard to get them consumed in China because of the weak

economy and a prolonged poverty crisis. And this combination of soaring exports

and cheaper prices is a very dangerous combination because it could trigger

reactions not just from the US and EU, but also the emerging markets.

We already see Latin American countries slapping increasing tariffs on Chinese

steel. Countries like Thailand, Saudi Arabia

are considering to take similar steps South Korea, India.

They also put tariffs on Chinese manufactured goods.

So this is something to look out for as well.

A potential trade war on both fronts as low tech exports pick up as well.