Economist Louis-Vincent Gave, CEO of Gavekal, spoke at the Fortune Leaders Forum in Macau on September 8, discussing market outlook and strategy. He posed the question: in a systemic hit, do you want to be with the anti-fragile or the profit-maximizing? Gave asserted that markets are diverging, with US Treasuries yielding "horrible returns" while Chinese government bonds offer "very good returns." He noted that Chinese government bonds, bolstered by deflation and significant domestic savings, are providing investors with a safe-haven asset.
Gave elaborated that while the US is typically favored for investment 90% of the time, especially when things are going well, China becomes the preferred destination during the 10% of times when things go badly. He highlighted the yield on the benchmark 10-year Chinese government bond as below 1.7%, significantly lower than the 4.8% offered by the 10-year US Treasury note. This preference for Chinese bonds comes amidst investor wariness of mounting debt in the Western world, with the US national debt now at $40 trillion.
Despite China's current weak GDP growth, retail sales, and investment, Gave believes China is benefiting from its investments in social stability. He acknowledged that China "should be going gangbusters, and it's not," attributing this to "crushed" consumer and business confidence. Gave also identified energy as a major geopolitical stress point, noting that oil prices have surged since the Iran war began earlier this year, causing energy shortages across Asia-Pacific, even though prices have come down from their April peak.
