So far, so good. This seems to be a preliminary assessment by investors looking at the Biden administration’s indications of future policy changes.
Democrats intend to boost economic momentum and deal with the epidemic that has pushed US and global equity markets to new heights this week.
Of course, there will be many more changes in the policy for investors to digest. But there is one issue that could linger in Trump’s years in the White House. The latest news from Washington on the Chinese side states that the common economic and technological animosity between the two powers is already strong enough.
“China is clearly our most important strategic rival,” Janet Yellen told lawmakers during her confirmation hearing as US Treasury Secretary under the US president this week. “It is stealing intellectual property and engaging in methods that give it an unfair technical advantage, including the forced transfer of technology.”
Yellen’s comments come as several Chinese companies were nominated from Wall Street during the final stages of the Trump administration, leaving investors uneasy.
Over the next four years, there is scope for rapid escalation of hostility between China and the United States and unconnected financial markets as the global economy deviates from Code-19.
Focusing on making life difficult for companies and sectors based on national security can lead to higher costs and lower revenues. During Trump’s presidency before the epidemic, escalating tensions between the United States and China hit equity markets, raising concerns about the economic outlook.
“The strategic rivalry between China and the United States is here to stay, and it will remain a constant dynamic.”
But many on Wall Street believe that China’s rise will bring opportunities for investors. Ray Dalio’s choice of the Bridgewater hedge fund strongly believes that China is on track to become the financial center of the global economy, and will eventually compete with London and New York.
Foreign asset managers are expanding their presence in China, as the country has welcomed them to help Beijing open up its financial markets around the world. More Chinese equities and bonds are being added to global standards under the auspices of such large index groups.
Russell as MSCI and FTSE.
This led to an increase in foreign capital last year and Chinese equities helped the rest of the world improve. The CSI 300 has increased by 35% over the previous year as compared to the 16% increase of MSCI All World.
Bowen said the global ownership of Chinese assets and the better prospects for long-term development in the Asian region than in the rest of the world is a fascinating combination. Over the next five years, BlackRock estimates that China’s A-shares will have an average return of 6.4%, compared to 4.1% for U.S. big-cap companies.
“We think it’s a clear case for China to maximize its portfolio of China’s exposed assets for return and diversification,” Mr Boiwen said.
Also appealing to global investors is the fact that China’s sovereign bonds offer much higher interest rates than in the developed world. China’s 10-year bond yield is 3.10%, much better than the leading economies.
In addition, a strong renminbi adds to the issue of Chinese assets. The currency is not far from testing the 6.0 to 6.25Rmb per USD band, which represents the peaks seen in 2014 and late 2018.
Alan Ruskin, a Deutsche Bank strategist, said that while Beijing intends to slow the pace of appreciation, the exchange rate should be strengthened.
“It’s positive for long-term investors [buying renminbi denominated assets] In China, “he added. Mr Ruskin said the prospect of a steady increase in global demand for Chinese economic assets from their current lows represented a structural support for the renminbi.
However, a more anticipated currency and an impressive return from the epidemic does not mean that investors should lower their protection towards Chinese markets. Questions remain about the governance and legal standards of companies. Beijing also faces long-term challenges, including rising corporate bankruptcy, poor productivity and a heavy debt burden with an aging population.
“There are a lot of reasons why investors should exhibit from China, but there’s already a lot of good news going through the markets,” said George Magnus, a research associate at Oxford University’s China Center.
He believes Wall Street has “a fast-paced self-service in China.” But in general, there is likely to be a “very hostile global environment for China.”
This increases the risk that China will change the rules with a little caution. For now, it is welcoming the world capital, but it is not a rock. Especially if tensions between the United States and China escalate.
Financial Times Limited 2021 Copyright