As Joe Biden takes over as US president, should investors bet on American or Chinese stocks?
- The biggest risk to markets is a disruptive break in the existing order. A breakdown in the transition of presidential power would constitute such an event
- While this risk has diminished, China’s opening of its capital markets and the promise of better relations with the US bodes well for its stocks
Last month, like so many others, I scanned a 21st-century tool, Twitter, to see if 18th-century rules devised to transfer power from one US president to another would hold.
For investors, this episode serves as a reminder of a profound truth. The biggest risk is not from a market gyration – these normally smooth out over time – but more from a disruptive break in the existing order, from which investors may never recover. However, in a dynamic economy, the existing order is always under strain, it’s just a question of degree.
The flux in wealth is what makes investing both so interesting and treacherous. As a global macro investor, when I build a portfolio, I am indifferent to national borders. My goal is to assemble a return stream to get the highest return for the risk I endure.
In doing so, I am mindful of the historical record. Yesterday’s hegemon, like Portugal’s colonisation of Macau, is today’s has been, and vice versa. Germany is now considered a paragon of stability but witnessed both hyperinflation and a breakdown in order less than a century ago.