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The US-China Competition Multiplies Investment Opportunities

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The US-China Competition Multiplies Investment Opportunities

Today’s Bipolar World Order Is Not A Step Back To The Cold War But A New Chapter For Globalization — Accelerated By The Pandemic — Multiplying Both Opportunities And Risks.

"How will we win the Second Cold War?," this time against China, asked a few days ago the Pulitzer Prize-winning author Bret L. Stephens, also a former columnist for the WSJ and the Jerusalem Post, from the pages of the New York Times. The answer he gave is to exploit the opponent's weaknesses, as it happened against the Soviets. In that occasion, the Evil Empire Achilles’ heel was communism, while — according to Stephens — the current Asian superpower shows three liabilities: nationalism, cult of personality, as well as spiritual and ferocious repression of religious freedom. There has been talking of a new Cold War ever since Trump declared his Tariff War four years ago, opening an all-fronts confrontation, ranging from trade to technology- that his successor Biden seems keen on pursuing. There are, however, more differences than similarities with the 30-year opposition between Western powers and the Soviet Bear — marked by Europe's "Iron Curtain — " which had turned the rest of the world into a great battlefield between the two superpowers. This is particularly true from the investor's point of view, since — during the historical Cold War—- they had to rely mainly on a fixed income, while after the collapse of USSR, they obtained the greatest satisfaction from equity investment.

S&P 500 Index Since 1927 (Inflation-Adjusted, Recessions Marked In Gray)

Stock Market Secular Trend: The diagram above shows Wall Street's substantially “lateral” trend during Cold War 30 years, punctuated by several recessions. On the contrary, the Soviet Union collapse triggered a secular trend in the stock market, further backed up by the movement of huge capitals from the arms race to civil technological development, symbolized by the Internet. The rise of China as a global economic superpower has supported and accelerated the process. Cold War challenges were ideological, political, and military, with each contender wanting to impose their own model on the rest of the world - communism for the Soviets, capitalist democracy for the Americans, - with the aim of wiping out the adversary. Nowadays, on the other hand, Americans and Chinese do compete for world primacy, but by playing different versions of the same game of capitalism and markets. The rules are 'competition & cooperation', as clearly summarized in recent days by the Italian Prime Minister Mario Draghi in his “Erdoğan doctrine,” also defining Turkey’s President as a dictator with whom, nonetheless, one has to collaborate in order to ensure the interests of their country.

The Case Of Rare-Earth Elements: The pandemic seems to have accelerated the process - as it has occurred for other secular trends, such as digitalization and energy transition, - herding disorderly globalization towards a new bipolar world order whose two lead actors' economies are — unsurprisingly — recovering better from the crisis. Digital revolution and energy transition open new competition frontiers in fields that were essentially unexplored until a few years ago, such as the 17 rare-earth elements, which are fundamental for developing both new digital technologies, like superconductors, and green energy solutions, from electric cars to wind turbines. China is the biggest rare-earth mineral producer and has also tried to get its hands on Greenland's, an attempt which was rejected by a referendum. The point is that the Asian giant has to play by the rules of capitalism and the market, the latter being composed of global investors who vote with their feet and are ready to bolt if suspecting local governments of cheating.

Investors Guaranteed By Common Interest: However, U.S. and Chinese interests are so entangled as to guarantee investors against the possibility of an open conflict. Beijing has invested a large amount of its substantial foreign exchange reserves in Treasuries and needs Washington's huge capital market in order to finance investments in industrial and technological development, while Washington depends on Chinese consumers with increasing spending power to boost local multinational exports. Moreover, the U.S. aims at opening a new, immense asset management industry market, globally ruled by stars-and-stripes giants as BlackRock. Thus, the new bipolar world order seems to be rather an investment opportunity multiplier that crosses the borders of the Earth's atmosphere. In fact, the space economy stretches far beyond Elon Musk's space tourism, involving potential access to new mineral resources.

Bottom Line: A world that multiplies investment opportunities is certainly good news for global investors, but also represents a potential risk multiplier. Therefore, do-it-yourself investing would be rather unwise in such an environment, while recourse to qualified and experienced counseling is highly recommended - if not mandatory. This is especially true today - a year after the wonderful opportunity of entering the bottom line, due to panic, - when the path seems bumpier, at least in the short term.

This article originally appeared on Financialounge.com and was translated from Italian to English. It does not represent the opinion of Benzinga and has not been edited. For news coverage in Italian or Spanish, check out Benzinga Italia and Benzinga España.

 

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