SINGAPORE – The global economy is undergoing a geopolitical transformation which will ultimately result in a bi-polar world dominated by the United States, on one end, and China on the other, said global investment giant BlackRock.<\/p>\n
“The coronavirus pandemic has accelerated geopolitical transformations such as a bipolar US-China world order, and a rewiring of global supply chains for greater resilience,” BlackRock noted in a report last week. “We believe investors need exposure to both poles of global growth.”<\/p>\n
BlackRock’s managing director and chief investment strategist for Asia-Pacific Ben Powell was particularly optimistic on the prospects for China and North-east Asia.<\/p>\n
“China is already undergoing activity restart, and we hope this is the canary in a coal mine for the rest of the world six months forward,” he said. “In 2021, they will embark on the battle against pollution, inequality and debt.”<\/p>\n
Mr Powell saw China’s economic growth being appreciably above the 7 per cent trend, noting that some areas “have yet to normalise”. He was also upbeat on other North Asian economies like Taiwan and South Korea, and saw significant bounce-back in the two populous economies of India and Indonesia.<\/p>\n
However, BlackRock was underweight on Europe, citing political and leadership uncertainties over the next few years.<\/p>\n
BlackRock, which has some US$8.8 trillion (S$11.67 trillion) of assets under management, was not particularly concerned about an equity market bubble.<\/p>\n
“The euphoria makes sense as the market is pricing in activity restart,” Mr Powell said.<\/p>\n
“This is not a cyclical recovery. It is a moment in time when we are seeing blended support from both fiscal and monetary policies. We could see the highest GDP growth ever since the 1970s. Meanwhile, we are in a new nominal in yield, with the likelihood of real yields in negative territory.”<\/p>\n
He noted that, after going through the tumult of the pandemic, policymakers were inclined to tolerate some inflation pressures as they go for “too much growth” and “too much jobs”.<\/p>\n
Indeed, with governments and central banks worldwide pump priming struggling economies with fiscal and monetary stimulus, BlackRock reckoned the pandemic has been a great accelerator of structural trends.<\/p>\n
“The traditional business cycle playbook does not apply to the pandemic,” it noted. “We see the shock as more akin to that of a large-scale natural disaster followed by swift economic restart.”<\/p>\n
But, amid all this, US-China tensions will persist.<\/p>\n
BlackRock noted the new Biden administration, while taking a different tenor in its approach to China, was likely to have a sharply differing approach in trade and climate policy. Human rights will also be an area of friction between the two economic giants.<\/p>\n
“Overall tensions look set to stay elevated amid ongoing economic and technological competition,” its weekly commentary noted.<\/p>\n
Still, both countries could find areas of cooperation in public health and climate change policies.<\/p>\n
BlackRock’s bottom line: “We believe investors need exposure to both poles of global growth in an increasingly bipolar US-China world order. Strategically, we see assets exposed to Chinese growth as core holdings that are distinct from emerging market exposures. There is a clear case for greater portfolio allocations to China-exposed assets for returns and diversification, in our view. Tactically, we are overweight Asia ex-Japan equities as many Asian countries have been more effective at containing the virus and are further ahead in the economic restart.”<\/p>\n
Among the risks to China-exposed assets are China’s high debt levels, currency volatility and heightened US-China conflicts. “But we believe investors are well compensated for these,” BlackRock concluded.<\/p>\n
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