Billionaire investor Ray Dalio, founder of Bridgewater Associates, recently highlighted escalating U.S.-China tensions and the importance of diversification in the face of growing global risks.
Speaking at the Greenwich Economic Forum in Hong Kong, Dalio emphasized the potential for significant economic and political upheaval in the coming years, as reported by Bloomberg.
He stressed that U.S. election results and economic sanctions against China are among the most critical issues currently.
Risk Of Internal Conflicts Within The US
Dalio underscored the risk of internal conflicts within the U.S., particularly surrounding the contentious issue of election legitimacy.
He emphasized that the policies of a reelected Donald Trump would starkly contrast with those of a second-term Joe Biden presidency. However, he noted a bipartisan consensus on anti-China policies, which could lead to severe economic consequences on a global scale.
Economic Warfare Often Precedes Military Conflict
“There's a great risk of economic sanctions that would be really terrible for the world,” Dalio said, highlighting that economic warfare often precedes military conflict. He warned that the long-standing one-China policy, especially regarding Taiwan, could face significant challenges, affecting international investors.
Dalio painted a broader picture of a world facing unprecedented risks due to:
- enormous debt levels
- internal political strife
- great power clashes.
Adding to these are natural disasters, pandemics, and the rapid advancement of artificial intelligence.
Economic Uncertainties Make Diversification Crucial
These uncertainties, he argued, make effective diversification in investments more crucial than ever. “The power of diversification is greater than the power of even good decision-making,” Dalio said.
He stressed the need for investors to spread their assets across countries, currencies, and asset classes to mitigate risks. He noted that while Chinese assets have recently seen declines, they are now attractively priced, and Bridgewater has found effective ways to invest in China over the past five years.
Despite the tensions, Dalio remains invested in both the U.S. and China, recognizing their dominance in revolutionary new technologies. However, he also pointed to neutral states such as those in Southeast Asia, India, and the Middle East as attractive investment destinations, often faring better in conflicts compared to the main warring parties.
Dalio: Prefer Equity Over Debt, Hedge With Gold
Dalio expressed a preference for equity assets over debt, citing concerns about the latter’s inadequate returns. He warned that central banks holding significant debts may have to monetize losses, leading to late-cycle inflation.
Popular exchange-traded funds offering diversified exposure to U.S. equities include: the SPDR S&P 500 SPY, the iShares Core S&P 500 ETF IVV and the Vanguard S&P 500 ETF VOO.
As a hedge, he recommended holding gold, which he described as the third-largest reserve currency after the U.S. dollar and the euro. The SPDR Gold Trust GLD and the iShares Gold Trust IAU are popular gold-tracking ETFs.
Dalio’s insights highlight the critical need for investors to diversify their portfolios amid rising global risks, particularly those stemming from U.S.-China economic tensions. By spreading investments across various regions and asset classes, investors can better navigate the uncertain landscape ahead.
Read Next: Ray Dalio: US ‘On The Brink’ Of Civil War, But Not One Where People ‘Grab Guns And Start Shooting’
Photo: Web Summit on Flickr
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