The two great powers are “on the brink of a much worse economic or military war” but neither wants to cross that line, as a major deterioration from current conditions could be disastrous, Dalio said in exclusive comments made to the Post. This strained but contained rivalry is set to pose major risks for global investors, he added.
“I expect that there will continue to be a vicious competition,” he said in an emailed response to the Post. “As a result they will both press up against the other’s red lines, and they both have their own big domestic challenging circumstances that could cause instability.”
The domestic situations within each country, especially how the internal conflict in the US pans out over the next year, will have a greater impact on US-Chinese relations and what the new world order looks like than anything else, he added.
“Both countries and the world are in risky positions” amid the elevated debt burden, technology and climate changes, he said. “That makes diversification of investments in different asset classes and different countries more important than ever.”
The CSI 300 Index tracking the biggest firms listed in Shanghai and Shenzhen has tumbled some 38 per cent since a peak in February 2021, while the Hang Seng Index, tracking the largest and most liquid stocks listed in Hong Kong, slipped over 42 per cent during the sell-off.
The total value of Bridgewater’s Chinese stock holdings had plummeted to US$313 million at the end of the first quarter, an 86 per cent drop from a recent peak of some US$2.2 billion in early 2022, according to calculations made by the Post.
“The combination of cheap prices and the momentum of selling tapering off is a dynamic that is consistent with price gains,” he said.
Still, diversification in the world’s second largest economy is “desirable” as the assets are “attractively priced” and can balance the portfolio, he said.
“In my opinion, no exposure to any asset class or country should be more than 10 per cent of one’s portfolio. And with one’s limitations at that sort of level, one can operate without much risk in all of these markets.”