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Irrespective of who sits in the white house, China wins

Only a few days left until the US presidential election. With a bit of luck, we will then know the outcome of this soap opera, whose only merit will have been to bring some change after months of media hype about the coronavirus. We can barely wait to see the end of it and move on.

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If there is one subject on which there is bipartisan consensus in Washington, it is the required stance in the face of China’s rise to power. Whatever happens on the morning of 4 November, the US administration will maintain an aggressive attitude towards Beijing and its desire to take its rightful place on the world stage. The form would improve in the event of a Biden administration, but the substance will remain unchanged. The same logic applies to the strategy of the Chinese under the leadership of President Xi Jinping. No change is therefore in sight regarding our secular outlook forecast of a bi-polar world with a Chinese economic and financial cycle uncorrelated to its US counterpart and two technological ecosystems that might be unable to communicate with each other.

 

Stay focused in a world full of distractions
The risk remains, however, that we will not be further ahead on the morning of 4 November in the event of an undecided result or a challenge by Donald Trump if he is declared the loser. Let us hope that this will not be the case, as risky assets would probably not take it well. At a time like this, we can only recall one of the core principles of our investment approach. We cannot predict external shocks, we can at most take advantage of them if the market overreacts when they occur. In the meantime, we try to focus on those endogenous factors that we think we understand. This principle is all the more important as election candidates are in any case accustomed to not keeping their election promises. So the backdrop has not changed and will be the same when Europe wakes up the morning after the election.

The pandemic is far from being under control. The measures imposed by governments to protect health systems are constraining economic activity and confining us to a recovery of only 90%. However, the yield on 10-year US Treasury bonds rose to 0.85% on the back of polls predicting a ‘blue wave’ next week. As for signals coming from the equity market, there is no clear trend. In fact, the movements of the last few days are more in line with the classic logic of an earnings reporting season, in which stocks shift for better or worse on specific rather than factorial grounds.

We therefore prudently await the outcome of the epic 2020 US presidential race by remaining focused on our favourite secular themes, notably Chinese assets and biotechnology.

This is an extract of the ’CIO Weekly’. If you want to learn more about our investment approach, get in touch with us.