With rivalry rife between China and the US, here’s how Unicorn Financial Solutions are investing in them considering their strengths.
Why China?
China’s investibility relies on their growing influence and wealth redistribution.
1. Growing clout
China has been expanding rapidly, especially in the last 2 decades. As it was the only major economy to have positive growth last year, China may overtake US sooner as the largest economy1.
Besides GDP growth, China’s influence has also been growing. Comparing each country’s dependence upon one another, the Atlantic Council was able to measure the influence of each region – and the trend is clear – America’s global influence has stagnated, Europe’s has waned, while China’s has rapidly expanded2.
2. Wealth Redistribution
President Xi Jin Ping is adamant on “common prosperity” instead of massive wealth being accumulated in the hands of the few. This means that there are (and will be) policy changes, regulations and uncertainties which investors do not like, which has caused the current market volatility.
In the longer term, however, Unicorn think that the President’s vision of “common prosperity” will bring about a bigger and wealthier middle class that would drive their consumption and also the economy in the years to come.
China’s Valuation
Considering the valuations of the Chinese stocks at this moment, it reflects a market that is overly-pessimistic over short-term noise, hence posing great buying opportunities for long-term holders.
Why US?
US wins out in two other areas.
1. Tech supremacy
As the tech boom has to be fueled by semiconductors (the computer chips that power most modern electronics) – the brain in the value chain remains in US’s pocket as long as US continues to block key technologies from China, or until China advances their own. The leaders in semiconductors are now mainly in the US and its allies.
2. Reserve currency
As the US dollar continues to be the world’s reserve currency with 61% of the Central Banks holding its reserves in US dollars and 90% of world trade being conducted in US dollars, US money-printing did not seem to have dampened its currency much. Though the threat is not yet present, Unicorn believe that the US dollar will probably weaken in time to come.
Conclusion
Hence, Unicorn think that investing more broadly across sectors would be appropriate for China, and Unicorn will prefer to be investing very selectively in the US given its equities valuations are high. Unicorn prefers focusing only on its crown jewel, the technology sector. However, a bumpy ride is to be expected in the short-term.
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