What is unusual is the timing, perhaps, and also the decisiveness of the move by UBS.
Not exactly a call to basically sell America, but it's a call to kind of take a more cautious perspective.
I think the biggest potential risk comes from this tech bubble.
This extremely high valuation itself is already posing a warning to global investors.
Don't try to profit from the US equity market with too high an expectation.
Capital is seeking to diversify.
We are going to say 2026 and the years around us now represent a structural transitional moment.
Hot issues in a more casual way welcome to the chat lounge joining me for a chat on whether the era of us market dominance is shifting.
Warwick powell, adjunct professor, queensland university of technology, australia.
Liu, an assistant professor of economics, Peking University in Beijing.
And Chen Jiahe, the chief investment officer of the Beijing-based Novi Market Technologies.
A warm welcome to you all, gentlemen.
So global financial giant UBS has downgraded US equities from overweight to neutral, or what some call benchmark weight.
It cited dollar risk, weaker corporate buybacks, stretched valuations and policy volatility as factors in this decision.
So this question goes to you all.
Please, brief answers for now and we'll unpack it later.
How unusual is this move and which factors do you think carry the most weight?
So shall we begin with our investment expert here?
Jia Hu, please.
Well, looking at the U.S. market this year, it has been performing pretty flat.
Currently, if you look at the US market, I think the biggest potential risk comes from this tech bubble.
That is well, I'm personally pretty certain that it is there.
So one day, if companies start to invest less money in the AI technologies, that's going to pose some trouble.
So you're saying stretched valuations.
All right, to Linlin, please.
Yeah.
So I think this move is not exactly a call to basically sell America, but it's a call to kind of take a more cautious perspective.
And I think it's quite important because it kind of challenges our belief in the so-called US exceptionalism when it comes to the stock market.
Basically previously.
When people think about US, they think about the AI leadership, the stability of the earnings and also in terms of the policy.
But right now, I think a lot of the changes in the geopolitical stages and also in terms of the risk, I think UBS this move is basically mostly driven by the uncertainty in terms of the is basically challenging.
Is U.S. really the only game in town?
Is U.S. is really the only basket that you are going to put all the eggs in?
I think that's basically, you know, posing a big question mark in that way.
Okay, you highlight policy volatility.
And last but not least, Willwick, please.
I don't think it's unusual at all in one very specific sense.
And that is that there are that have been taking place in the global economy and in the US economy for quite some time.
What is unusual is the timing, perhaps, and also the decisiveness of the move by UBS.
My own sense is that the fundamental structural problems really go to unjustifiable valuations which are underpinned by exceptional levels of dollar liquidity and volumes within the marketplace.
And once the real economy fails to deliver sometime in the not too distant future, then we're going to see valuations collapse and the market, broadly speaking, will adjust progressively to a more diversified global economy.
So you tooted toward also unjustified evaluation, but...
Going through these factors one by one.
Warwick, you mentioned the value of the US dollar and the dollar risk is listed as a central concern.
Why?
Well, the historical pattern is that when there is a drop in the trade weight of the dollar, then US equities tend to underperform global peers.
So that's really the issue.
And the strength of the US dollar has been on the wane over the course of the last 12 months, quite deliberately, frankly speaking.
And there is no expectations that the US dollar is going to experience any dramatic relative rebound.
So in that sense we are seeing a structural change in the standing of the US dollar in global terms.
And UBS is recognising not only that reality but the fact that historically there is a very clear relationship between a weakening of the US dollar and a weakening of equities valuations.
And could a weaker dollar benefit actually benefit US multinationals through overseas earnings translation?
Well, it depends.
There's no general answer to this because it depends on the structure of their operations.
And if they have heavy dependencies on paying for inputs from other countries using US dollars, then it won't be that useful at all.
But on the other hand, if they don't have that kind of exposure, then it could be beneficial.
It really does depend on what their international supply chain structure looks like.
So I would hesitate to say that there is a general story around the dollar and how it affects individual companies.
Okay.
Both Warwick and Jiahe mentioned the U.S. corporate valuations.
So, Jiahe, I got some specific numbers here.
UBS calculates that the sector adjusted price-earnings ratio for US stocks is 35 above international peers, versus an average premium of about 4 since 2010.
So can you tell us what that says about U.S. corporate valuations?
If we look at the valuation of US companies at this moment, it's actually quite diversified.
I mean, if we look at traditional companies, we can see their valuations are well pretty low or fair.
Most of the hybridization concentrates on the high-tech companies, especially high-tech companies that are related with AI technologies and these kinds of things.
And many of these companies are extremely expensive.
And there is one problem is that you can't simply compare the valuation of US high-tech companies with global peers, because currently this AI high-tech bubble is actually prevailing all around the world.
So it's actually if you compare some overvalued US companies with another company that is also overvalued perhaps, for example, in South Korea, and you look at this percentage, saying that US companies are too expensive because this percentage is high, you miss something, because the base of comparison can also be a pretty high number.
But, overall speaking, I personally believe there is a large bubble in the US stock market, especially concentrating with high tech companies.
I mean, look at Warren Buffett.
He has been accumulating one of the highest standards of cash in his portfolio.
I mean, this man created an investment return that is so remarkable in, you know, in decades.
And he's now thinking that it's risky for this company.
He wants more cash.
So that really tells you something.
Right.
Is that also one of the reasons why you know those, especially mega cap tech companies, hesitate to buy back, which is, you know, actually also listed as a major reason for Yeah, definitely.
I mean with company analysis.
We have a saying that no one understands the company better than this board of management.
So if a company decides that, I'm going to buy back my share, which is definitely not happening in US high-tech companies right now.
If there is a buyback, especially by the company itself, it tells you that the managers, the people who are really in charge of the daily operation of this company, thinks that it's valuable.
So in many cases, this leads to valuable investment targets.
But on the contrary, as we can see in the high-cap companies in US market right now, you are not buying back.
Many of the very important shareholders, like even the creators of these companies, are even selling their shares.
You look at these announcements, they keep on selling their shares.
It's definitely not a good sign.
I mean, sometimes you can't even trust the financial statements when you see a rising income and profits.
And you see, on the other hand, the managers are selling.
The company is not buying back stocks.
And I would personally say that you should trust the actions of the managers rather than financial statements.
So don't put too much faith in what it looks good for now I mean financially but trust the people who are in charge.
Then does that mean, you know, the longstanding US profitability premium will no longer be sustainable.
Well, I would say that that's basically concentrating with the high tech companies, because if you look at other traditional companies in the US market today like banks, manufacturing companies, railroad companies, these kinds of companies their valuation are pretty fair.
So it's more like a structural bubble that we can see that's prevailing in the US market today.
So that's building on this kind of over emotion to the high tech companies and their very high valuation.
Right.
And to Liwen, you pointed to the policy uncertainty and actually increasing policy uncertainty.
It's seen as another headwind.
So, apart from, you know, the tariffs introduced by the Trump administration, what other policies are we talking about here?
Yeah, so I think a couple.
So, in terms of changes in tariffs, as you mentioned, there's also going to be major disruption in terms of the industrial policy, in terms of the supply chain restrictions and also in terms of the uncertainty in monetary or fiscal policy, because we all know that Donald Trump just named a new Fed chair and how he is going to shift in terms of interest rates policy, in terms of the market's expectation towards the policy, in terms of whether the US is going to have debt or deficit because of the military actions.
And also in terms of taxes regulation, whether that's going to happen or change.
I think those are all kind of pretty uncertain.
And I think most importantly, UBS is a Swiss bank.
So I think the change in basically the downgrade reflects the perspective of a global or foreign investors.
So that's why I think, everything combined, the dollar risk is important because it's mostly coming from the global investors perspective, because a weaker dollar also affects the foreign investors purchasing power.
The buybacks are also going to be important because it affects, because if Europe offers a higher buyback than US firms, it's going to change how the capital basically allocates across different.
And I think I'd like to add to one more point about the 35 premium, the high valuation of US equity, or the magnificent five, the so-called the leaders or the AI companies, the crown jewel of the AI competition.
I think people right now having the 35 premium basically reflects that the market have very high expectations on these firms.
The high expectations could mean that if these firms does not meet the expectation or does not meet what AI promises the market to do, then you could see a huge adjustment margin for the valuation of this company.
I mean the magnificent five Apple Amazon, Microsoft and Meta.
They all concentrate very heavily in AI.
So that promise, if it fails to deliver, it's going to have a major event, a major blow of the total valuation of the US stock market.
So I think that's something we all need to miss a weakness.
So you're saying those big AI firms, they actually have let the investors down?
Well, what I'm saying is that right now, we're not seeing that they fail to deliver their promise, but I think they are overly concentrated in one area, which is AI.
So AI, or what the AI can promise, what the AI can deliver, you know, consists of a large proportion of their current high valuation.
So if that fails to deliver in the future?
For example, we have seen that the military action actually destroyed some of the hardware of the AI service provider and basically causing disruption of the AI service.
And I will not make names, but for a couple of hours.
So if that continues in the future, then people are going to have some doubts or challenges about whether the AI service, the bright future promised by these US companies, are going to be delivered.
And if more and more people cast doubt on that future, these companies, I think, are going to have major problems.
And not to mention, you have a lot of more competitors.
For example, Chinese firms, we have Deep Seek, we have Doubao and other AI service providers that can offer relatively, you know, same quality of service at lower prices.
So I think, personally I'm not very optimistic about the type of service or the uniqueness of what these companies, especially the magnificent five, can offer that the other companies globally cannot.
This has been the chat lounge.
Since capital is rotating out of the U.S., then Where is it moving or about to move?
That's coming up next.
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Welcome back.
We continue our chat on whether the era of US market dominance is shifting.
Warwick, if capital is rotating out of the US, where is it flowing?
Well, in broad terms, it's flying to emerging markets.
There is some movement into Asian equities.
But there is something important to remember about the current state of the US equities market, and that is The extent to which its valuations are heavily concentrated in a handful of companies, as the previous guests have noted.
The Magnificent Five or Seven, however you want to measure it now occupies over 30 of the SP 500.
That's a significant amount of concentration in a small number of companies, where there has been an incredible amount of liquidity poured into these companies, largely on the back of what I think increasingly is hope.
But maybe three years ago, four years ago, on the back of a series of promises about their ability to ultimately dominate the global landscape.
Let's not forget, many of these companies promised a business model that would deliver them what is, in effect, monopoly positions.
That was the hope, where they could create a motor around foundational models.
DeepSeek destroyed that business model and there's been a scramble ever since by these companies to find another pathway to revenue and ultimately to profitability.
That pathway remains unclear today.
And much of the capital that has gone into these companies has been a scramble for scale and an attempt to get ahead of the pack through investments in AI hardware.
So that's the first thing to remember about the state of the US equities markets.
There really isn't a broad-based equities market anymore.
It's really a very narrow-based AI underpinned market premised on Hogan and what appears to be flossing bubble.
In terms of the rotation of capital, I think it's fair to say that capital is seeking to diversify.
It understands this high level of concentration.
It also clearly, I think, understands the risks that we've been touching upon so far, and we see capital rotating back to europe, into japan, to some extent in the chinese equities market, which we've seen over the last few months, but also capital that may have otherwise gone into the US equities market is now staying at home in the emerging markets.
So I would expect that over time we will start to see the expansion, progressive expansion, the gradual expansion of non-US equities.
As far as the holdings of major investment funds are concerned,
But this is a clear sign that this is, I think, what's going on.
You mentioned Japan and Europe, but what about in Australia?
Look, you've got to remember.
The stock markets are ultimately underpinned by system liquidity and circulation.
And the Australian stock market of course responds to some extent to what's happening in the United States, but it's also underpinned largely by ongoing money supply expansion which does not have enough space in the real economy to absorb.
This is what happens when you have an economic structure that is fundamentally financialized, rather than one that has opportunities for the absorption of money capital in areas of genuine fixed capital expansion.
The only areas of fixed capital expansion in the AI space is literally in the building of data centers and the payment for the infrastructure that supports it, all of which is actually causing many problems elsewhere in the American business model.
When you drive up the cost of electricity across the United States so as to support the demands of the AI sector, These increased production costs, these input costs, ultimately dampen the capacity for American manufacturing to develop.
Let's face it, modern manufacturing also is electricity intensive, particularly as it requires increased amounts of automation and robotics.
And AI, in effect, is leading to what economists would call a Dutch disease effect, adversely affecting American manufacturing which, funnily enough or paradoxically enough, pushes money capital away from these sectors even more, which then balloons equities markets and valuations but ultimately doesn't deliver anything real.
UBS is still overweight for emerging markets.
So, Jia He, your investment portfolio mainly probably focuses on emerging markets, I would say.
Can you tell us more about it?
Is that simply about cheaper valuations, or is there a more durable growth story?
Yeah.
Currently, I don't hold any equities in the U.S. market, and I
Well, I would say, I think 100 of my portfolio is concentrating in China, about 60 in Hong Kong and 40 in Asia.
The reason that I'm putting so much money in China's equity market and don't put any of the money in the US.
I think this is the strategy that investors should try in order to make better investment returns.
There are multiple reasons behind this.
The first one is that the US market is well compared with China's equities.
It's just too expensive in the United States.
I mean if you?
Well, I don't even mention the high tech companies, which we previously discussed, that are having higher valuation in US market.
But even if we look at the traditional companies, for example, oil companies in US are usually trading at about one to two times PB ratio.
And if you look at Hong Kong and Asia, you find them trading at one times, or even less than one times PBRS.
If you look at banks, it's also the same thing.
I mean the US banks are trading at 1 to 15 times PBRS and China's banks are trading at around 05 times PBRS.
I mean, you get much better valuation.
And if you look at the economic growth, China's economy is much more stable compared With the US market.
China's inflation is much lower and this is causing the RMB to be stronger compared with the USD.
I mean, if we look at the performance of USD against the CMY in the past few months, you see a very clear difference surging of value of DNY compared with USD.
So if you put your money here, you don't just get money from your equities, you also get money from rising valuation of currency.
Also, there is another reason is that if you invest in emerging markets which China is definitely an emerging market You get a special advantage compared with investing in matured market is that in emerging markets you get much more fluctuations.
You get more mispricing because this market is not that matured.
Investors are not that matured.
You get much more mixed pricing in the market.
And by putting more money in this market, you get more investment opportunities.
So that's why I'm putting all my portfolio in China.
I think this is a very good strategy.
I mean, otherwise, I wouldn't have been doing it.
Right.
Sounds a bit technical for us.
But Li Lun, can you explain in layman's terms, right, your observation here?
Yeah.
So I think Overall what Jia He was saying and I totally agree also with Warwick is that for US stocks they're pretty much too expensive to invest.
So basically, also the market is pretty mature.
If, for foreign investors, you put too much resource, invest too heavily in US markets on the margin, what can bring you, whether in terms of dividends, whether in terms of the buyback, is slowing down.
And with the same amount of money you can actually buy a whole lot more shares if you invest in Hong Kong, if you invest in other emerging markets.
And also in terms of the growth, the growth margin.
So usually you know the emerging markets, especially for markets like China, you know reflects the fastest growing sectors, such as humanoid robots, such as advanced manufacturing, such as EV.
And those things are pretty unique in China's case.
So if you want to pursue growth in these fastest growing areas, of course, I think you have to concentrate more in emerging markets.
Of course, AI is also rapidly growing.
But in terms of the application, in terms of the huge potential prospects for you know widespread application, and also in terms of the business model, as Warwick is pointing out, you know how can it bring.
You know millions or billions of revenue to an average you know US firm or to the you know the mainstream, not just the Wall Street.
I think that's the important question that people are not really seeing for US companies, but are gradually seeing more and more for Chinese companies.
For example, the digital economy, the digital revolution is changing the way traditional Chinese firms actually produce their products, also with these new varieties, new product innovations.
For example, I've seen many times in shopping malls.
You know these human robots making coffee for you.
So gradually, these things are going to become a more crucial part of our daily life, changing the way firms and you know companies produces goods, and also changing our lifestyle.
So we can actually see more and more about the growth prospects of these technologies.
And in US's case, I think the growth or the benefits are more concentrated in a number of, or the very few companies at the very top.
So once these companies, as I mentioned, fail to deliver its business models, its promises, it's going to have a very dangerous effect on the total US stock market in whole.
Right.
It's a story of industrial upgrading, right?
Do we have any other stories tied to other factors, Warwick?
Well, look, I mean, let's just go back to understanding how these systems actually work.
The equities markets are places in which money capital, flows in the hopes of securing rights to future value growth, either by way of future capital value growth, which you can realise through trading, or by way of access to some future revenue stream right by way of dividends, et cetera, et cetera.
So this is the fundamental logic.
The American equities market is predominantly domestically, is and it's less than 20 is largely a recycling of US dollars which moves through the American system, either through things like government debt or the equities market and, to a much lesser extent, direct purchases of real estate, et cetera, et cetera.
So there's essentially a very large amount of US dollars in the global system.
And most of those US dollars, when they're not circulating through supply chains and and purchases and sales of goods essentially trade, um ultimately find their way into markets like this.
Does this represent anything significant?
Well, in many regards, the us stock market has always been driven by narratives right, we've seen this come and go over the years, and investors are always looking for the next you know big thing, And what we've seen over the last five years or so is the promises of the next big thing, which is artificial intelligence, and a massive amount of circulating US dollars has ended up in that arena.
It's not delivering yet.
Now, in terms of what overseas investors begin to do.
Historically, those that have looked to the US equities market are now seriously looking elsewhere, in part because of fragilities in the American economic model, in part because of cross-border risks occasioned by policy and geopolitics and those sorts of things.
And in part, as some of the other guests mentioned, because their own markets are actually demonstrating robustness, delivering genuine opportunities at what is perceived to be fair value or, even better than that, great value, with price-to-earnings valuations very low.
In other words, fantastic times to buy.
And so, unsurprisingly... money capital begins to find its way into these areas.
Will this ultimately lead to, you know, transformations economically?
Well, in summary, it is it will.
I would suggest that outside of the United States, where there are real economic activities, real fixed capital formation, we're likely to actually see better economic performance outcomes than we're going to see in the American real economy.
What America has to hope for, certainly in the lead up to the midterm elections in November this year, is that there is significant liquidity continued to be pumped into the system to keep the bubble going.
Because if the bubble pops, we're going to see a lot of economic and social fallout and ultimately, potential political fallout as well.
Right.
And Jack mentioned, he basically has no exposure to US stocks, but US equities make up roughly 70 percent of major global indices.
This question goes to Leland.
Does that sheer weight limit how much capital can realistically exit the U.S. then?
Definitely.
I think the intuition is that you can't really drastically sell or underweight these US equities without taking either an alternative investment opportunity somewhere or taking a major risk of owning all of these liquified dollars and without actually spending it somewhere.
So mechanically, I think realistically, i do not see that a lot of capital are going to exit the us in a very fast pace.
But as you know our guest warwick has pointed out, i think very importantly is that how much of the potential investments that were supposed to go into us were kept in their own countries so Previously.
I think when people think about US stock market it can be the sole investment opportunity.
It can be the sole direction or the sole destination for our money.
But right now, maybe what especially the institutions are making their investment decisions.
Maybe I'm choosing a portfolio that consists of both the US and something else.
Maybe US plus Europe or US plus emerging markets.
So there's going to be some allocation of funds that were supposed to enter the US but because of these downgrading and also because of the changing situations, didn't go there.
So basically, it's going to change the marginal buyer, the buyers that are indifferent between investing in US and investing somewhere else, and change their opinion.
But I do see that in the future, I think it's definitely going to benefit the investors if they basically diversify their investments in terms of both the destination and also in terms of sectors.
So if you want to invest in AI, maybe it's still good to invest in us but if you want to invest in other sectors not just ai maybe for example in terms of the new energy in terms of solar panel in terms of you know the green energy of course you have to invest somewhere else and us is not the main provider of those technologies so in that case consider china or maybe europe or some other countries that provides you know those kind than listening to the chat lounge we'll have more on whether it's a market signal or a structural turning point right after the break stay with us with a history of 5 000 years it's no surprise that china has created a fabulous treasury of folk tales day of the seventh month all the magpies fly up to heaven and form a bridge so many amazing worlds to discover i want a new palace said king mu of joe one day chinese folk tales retold for audiences today will will you marry me he asked and with little hesitation she said 5,000 years of amazing Chinese folk tales.
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Welcome back.
We continue our chat on whether the era of US market dominance is shifting.
Then let's move on to probably its trend.
Is this downgrade merely a short-term tactical adjustment or does it signal a shift in the underlying logic of structural asset allocation?
I believe some of you have already touched upon this, but could you elaborate a little bit more?
Let's begin with maybe Li Lun.
Yeah.
So I think my assessment is that it's a short to medium-term adjustment and a lot of the investors are going to sit tight and watch how the situation, especially military actions between US and Iran, goes in the long run.
So in the current cycle, I think this downgrade reflects a structural change trend or structural transformation of how people are going to understand whether a high concentration in US market is a curse or a blessing, whether it's actually risky to put all of these money in US only.
Or is it actually safer to kind of allocate to other countries and reduce the dependence in a single country or a single sector and actually diversify their resources?
So I do think that people, especially with the current situation in terms of geopolitical conflict, A lot more people are going to observe, take a wait-and-see perspective.
And not to mention that the valuation of these US stocks are unusually high.
So if not, for example, if we do not have all of these other risks or other factors that we need to observe, this extremely high valuation itself is already posing a warning to global investors, not to mention you're adding all of these other factors on top.
So I think the rational or the cautious investors are definitely going to take these adjustments of FEM UBS very seriously.
Right.
Jiahe, what about you?
Well, if we look at the US market currently, its performance has been okay since the beginning of the years.
It's actually quite relaxed.
But looking into the long term, I wouldn't recommend, well, I'm not an expert with US equities.
I put my money in China because I know China much better. in the US in many details.
But if you're looking at the broader picture, the overall index, I would say don't try to profit from the US equity market with too high an expectation.
Because, if you look at the US performance, the equity has been going through a super bull market in the past decade and a half, ever since the 2008 global financial crisis.
And if you look at the United States market in the past 100 years, you see this trend.
It got a bull market, then it's followed by another bear market for many years and then it's followed by another bull market.
I mean, for example, look at what happened after the dot-com bubble.
The US market stayed flat for seven or eight years with you know very large drop.
Some companies even dropped it by the value of 80 or 90.
So that's actually the basic rule of investing.
If you have seen, a market has been going through a large bull market lasted for many years and both with high valuation companies.
Don't try to profit from it in the long term.
I mean, look at markets with a fair price and fair performance.
That's where the profit comes from.
Okay.
Warwick, your judgment here?
Look, I think that there's always short-term cycles intermixed with long-term structural changes.
The short-term cycles relate to, I think, two main things.
Firstly, there has been a significant expansion of system liquidity by way of money supply growth, particularly over the last six or seven years.
That's the first point.
And that has fed into a very narrow range of economic activities driven by narratives in large part around the dream and the promises of artificial intelligence and high technology.
That's your short-term cycle.
And we're seeing asset valuation bubbles become So far, their inability to deliver on the promise.
That's your short-term stuff.
Your longer-term stuff is a structural reallocation or portfolio restructuring at a global level per se, though when the bubble bursts, it will of course, on balance sheet terms, become smaller by dollar valuation terms.
What will happen is that markets elsewhere in the world will begin to play a greater role.
And those markets will be underpinned by real economic development activities and growth that's taking place across the world.
Notwithstanding current risks associated with geopolitics and war, we are likely to see, over the medium term, the ongoing economic development of the emerging markets, whether they are in Southeast Asia whether, of course, underpinned by China.
And, of course, in time, we're likely to see ongoing economic growth in parts of Africa, et cetera, et cetera, thinking very, very long term.
Now, all of these factors will lead to a structural adjustment.
Underpinning all of this incidentally, is a radical transformation of the energetic or energy underpinnings of economic activity.
For the best part of 100 years or so, global economic growth, particularly in the US and in Europe, has been underpinned by fossil fuels.
We are starting to see a transition away from economic development that is anchored solely in the ability to access low-cost fossil fuels to ones in which countries will have autonomous energy capabilities underpinned by renewable energy.
And because of that we are likely to see, I think, significant structural asset reallocations at a global scale over.
It's not going to happen in one year.
These are long-term transitions.
But if we sat here in 20 years' time and look back at this moment, I think we are going to say that 2026 and the years around us now represents a structural transitional moment.
Then during this process you said, like some 20 years, how decisive do you see the Federal Reserve could be in determining whether this asset rotation continues or reverses?
The asset rotation is going to continue anyway, and it's happening irrespective of the Fed.
The Fed will affect the amount well.
It'll contribute to the monetary policy environment in the US itself.
But bear in mind that most of the exposure to the American equities market is American money, right?
And as global trade patterns change and the US becomes less and less significant as a global trading partner in relative terms, and as the US dollar becomes, relatively speaking, a less significant trading instrument, we are going to see a reduced need in proportional terms.
Remember, the pie is growing.
But we are going to see a reduced need for US dollar recycling.
And that's the structural feature.
The structural feature is the US dollar is actually proportionately going to be less important as a means of payment and as a store of value than it is today.
And we've seen this already happening over the last 20 years and this pattern will continue.
Right.
I think Leland earlier mentioned the short-term impact of the attacks launched by Israel and the US on Iran.
Actually, the report, the U.S. report came out shortly before that.
In this context, how might geopolitical shocks such as this US-Israeli strikes on Iran affect markets in the short and long term then?
Well, look in the short term.
I think it was mentioned earlier that there will be a lot of wait and see.
There will be no hurried decisions made at the moment because of the uncertainties around the specific outcomes of the conflict itself.
But of course, what that means in the medium term, as far as system stability is concerned.
And so I think we are going to see a period, insofar as global capital movements are concerned, where there is going to be a bit of a wait and see.
Again, I go back to the point, the American or the US equities market is predominantly US owned.
It is American money investing in US equities.
It is not really a global equities market.
Yes, in terms of international investment, it does attract some.
About 18 or thereabouts of of the market value is currently owned by international investors.
But it is relative to the role of US capital considerably smaller.
It's ultimately going to be a question for American capital as to what happens ultimately to the valuations in the stock market.
International investors will come and go and they will respond accordingly.
But the fundamental drivers of the American equities market is going to be decisions made by American capital.
In the meantime, international capital will sit tight.
They will find safety in their own homes, I suspect, until the dust settles.
And unfortunately, it's likely that the dust won't settle for a little while.
And last question goes to you all also.
I think you all mentioned that in the longer term, people should actually diversify their portfolio.
But for retail investors in short term, maybe is global diversification becoming more urgent?
Or does it still make sense to stay structurally overweight on U.S. assets?
Your suggestions, please.
Maybe let's begin with Warwick this time.
Well, I wouldn't go into the US market at the moment.
And in any regard, most retail investors are not international investors.
If there is retail exposure, it's largely through structured financial products and third-party fund managers.
And, as we've been discussing, they are more than likely at the moment to take a wait and see attitude, but with a strong sense that their longer term portfolio positioning should be one in which they progressively diversify.
There will be no rush.
Nobody is at this point in time looking to tank the market.
And but at the same time, I think increasingly finance capital managers are highly sensitive to the realities that UBS actually put on the table, namely dollar risk policy risk and excessive valuations underpinned, if you will, by extremely fragile business models and arguably pumped up and messages narratives that are way too optimistic.
So you're saying no, no to US stocks for now?
Well, there's no reason to dive in more.
Okay.
Liuling, please.
Yeah.
So I think you know previously especially, for example, in the 2000s or the 2010s.
You know, I think people naturally or by default, if you want to invest almost in any sector, I think there's going to be an overweight in US equities because I think, whether we're talking about the US companies' innovation, whether we're talking about the distribution of global wealth, it's unproportionately concentrated in US stock markets.
But right now, with the growth of both the GDP, the population of the global south, we're seeing the emerging markets, ASEAN countries and also Europe.
They all have their own innovation edge in different areas and some even challenging the position of US leadership.
I think the more practical strategy, especially for investors, whether retail or institution, is to kind of have some.
Maybe, if you have your core US position, maintain them, but really take a more cautious perspective into whether to allocate even more resource into US or whether you should allocate some of that to the emerging markets if you want to pursue a higher growth, you know, especially other sectors rather than AI.
Last but not least, Jacko, please.
Well, I would say the short-term thing is always a very difficult thing to predict.
I mean, I've never been good at this.
So yeah, I mean I've been investing all my money in China because this place is rapid growth with its economy and industries and businesses.
It got very good valuations and more opportunities compared with material markets.
When we talk about US markets.
I don't want to put my money there because it's not comparable compared with China's market.
It's not profitable enough when compared with China.
But if you ask me about short-term, I definitely don't have much clue.
I mean, that really depends on too many things, like the Archon Protocol, while you just never know.
We never try to make prediction five years.
We always say, you know when they look at 10 years or more than that.
So short term things are really, really difficult to judge.
It's just too much variables, and anything can go to another direction that you haven't thought about.
Within the next one or two years?
Yeah, I mean that's because I can't say I know anything about one or two years, because I know that I have to put my money there.
I mean, for example, I know the US market is definitely going to fall within one year.
I was short the index, but I haven't.
So that just tells you that I don't have a clue about where the market is going within one or two years, or maybe three or five years.
But I know over 10 years, I say China is definitely the best place.
And this is not saying that I say China is only profitable after 10 years, but I'm only saying that my vision can only make a correct judgment if you give 10 years, but one to two years is just too difficult for me, right?
We got a very prudent investment expert here, And on that note we conclude this session.
Many thanks to Chen Yahu of Chief Investment Officer of November, RK Technologies Leland, Assistant Professor of Economics, Peking University, and Warwick Powong, Adjunct Professor, Queensland University of Technology.
For your time and insights, drop us a line anytime at radio at cgtn.com.
Tell us what you think.
And tune in for more chat at the chat lounge next week.
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