The dragon is no longer sleeping
The book Ten Lessons for a Post-pandemic World by Fareed Zakaria offers a critique of our current situation, no less caused by our own domestic incompetence but more pressing and less known is the impact of China's emerging success during these times. The China Dragon is awakening and it's necessary to acknowledge this as an investor.
It was only 40 years ago when the almost billion-member population were mostly farmers with bicycles and not the consumeristic and militaristic economic superpower that it is today. Zakaria highlighted China's dominance over the Asia-Pacific as the Trump administration withdrew from the TPP (Trans-Pacific Partnership). The void left by the Trump administration allowed China to invest greatly in the region, being the only superpower to provide vaccines to developing nations as the US declines to do so now.
China gains momentum and strength during the pandemic; this is reflected by the strength in its currency relative to the dollar, which is up 6,7% since June of this year. Technically, the manifestation of appreciation in the currency, as well as companies, suggests a long-term continuation. It may even be the start of a new polarization between the two of the world's greatest superpowers.
The US has a major anti-trade sentiment. Reflected by the $3 trillion trade deficit projected this year. The internalized approach by the US toward the world may have resulted in a momentary restriction of lost jobs overseas, however, the bigger picture is missed as China continues to take more of the economic pie.
An investment portfolio should consider Chinese currency and/or stocks to capture the relative strength that China is experiencing. The iShares Emerging Markets index “EEM” has approximately 42% in Chinese stocks.^2
This new dynamic with China might be the start of a new reality in geopolitics and economics. Modern portfolio theory, which has been used by money managers for the last 50 years has been overly US-centric in its investment selection. Chinese emergence might force portfolios to invest more in the region if the goal is to preserve the purchasing power and protect against inflation over time.
At Eureka Wealth Management, I keep my clients informed on the latest technical and economic developments as I see them. I also offer financial planning, insurance, and tax & estate strategies. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.
iShares Trust China "FXI" shows a possible breakout after a decade-long consolidation:
China's RMB relative to the dollar shows recent strengthening.
Sources
Ten Lessons for a Post-pandemic World by Fareed Zakaria link