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As the Dow Jones briefly breached 30000, an all-time high, it is becoming more apparent that the US will shortly be having a new team captain in the New Year. Whatever doubts [given his age] many have about Joe Biden's mental capacity as President-elect, he has thus far not made any embarrassing gaffes. All bets are now on the incoming administration steering the economy to calmer, safer waters as the pandemic-fueled disaster takes the USA to the brink. COVID19 was, and is, the Great Reset button – placing the global economy on hold and almost rotating it to ground zero.

The global superpowers are interesting case studies to watch as they give precedent and a standard as to how the rest of the world will copy, innovate, or improvise. China was hit first and hard with the COVID19 pandemic but has seemingly done well to respond to the crisis with its economy ‘recovering’ favorably. The question now is, will the global economy follow China’s lead and swing decisively and positively in its footsteps? Or will the US reassert its independence and perceived supremacy [America First] on the world economic stage with the new Democratic Party leadership?

Who will emerge the stronger superpower after all 2020’s blunders, finger-pointing, and challenges? One with an incoherent political process, growing inequality, rising social tensions, crumbling infrastructure, a compromised, failing healthcare system, and declining educational standards. Or a resilient [totalitarian] nation that has been posting positive growth [if you believe the numbers] even in a pandemic year?

Where to invest?

US stocks now account for about 45% of global equity capitalization. We are talking about the most prominent names from technology to financial services, most of which comprise 65% of total global portfolios. Presently, only 14% of the global market caps originate from China, although this percentage is increasing. The growth of more Chinese companies going global via IPO’s will only advance this trend. If one looks at international funds and global investment portfolios, fund managers still remain unconvinced by the ‘China Story,’ with Chinese stocks accounting for a mere 3%.

But is the mood changing? Our sentiment is that China could overtake the US as the world’s largest economy within just a few years. But it is quite a different story that offers greater growth prospects or, perhaps more importantly, more transparent handling of your investment.

Although the last few years may be murky for US politics, the established principles of free markets, stable and independent regulatory and legal systems, and reliability and transparency of data means it is safer to invest in the US markets via the US dollar.

China remains opaque, which explains why it is underinvested. Decisions by Chinese regulators often look arbitrary and/or political, with much to be desired in terms of transparency. Recently, however, some notable events may point to a sea change. Missed bond payments by a clutch of government-backed companies [Yongcheng Coal, Henan Energy, Chemical Industry Group, Electricity Holding Group] has resulted in a government edict that in future, there will be zero tolerance of any irregularities or misleading disclosures. A clear signal to the markets if ever there was one.

Still, our sentiment is that perception will adjust to reality, and the reality is that China is something you can no longer ignore. It is a growing market with a massive middle class that spends big time – ask any high-end luxury brand, and their top buyers are the Chinese. Global travel, hotel accommodation, and entertainment were also dominated by the Chinese pre-Covid. Those American companies that you talk about from Apple to Nike, mainly hinge their growth on the Chinese market.

Future prosperity seems to lean towards Asia and the Chinese, as America has some significant infrastructure recalibrating to do in the wake of the COVID19 Pandemic and decades of underinvestment. How fast it catches up with the Orient? We look forward to how it will come back to Make America Great Again.

For now, China is under deserving of a 5% weight of investments in terms of global portfolios. Investors should look again and double their positions to 10% - considering the sheer size of its market alone.

Barring a major geopolitical or Black Swan event, China’s downside is already over at this point. The US needs to establish a clear direction with the change in leadership.