Trump and Xi speak at a news conference in Beijing in November 2017.
▲ Trump and Xi speak at a news conference in Beijing in November 2017.
Photographer: Qilai Shen/Brooklyn

How Top Money Managers Are Trading the U.S.-China Superpower Clash

Mark Mobius, Cathie Wood and eight other leading investors share their picks and predictions.

The U.S.-China relationship seems to be getting worse by the day. But how bad will the fight over everything from trade to technology and Hong Kong get? And what does it mean for investors?

We put those questions to ten money managers—including ETF maven Cathie Wood, private equity guru Fred Hu and emerging markets veteran Mark Mobius—who stand out for their industry-leading track records or sizeable portfolios.

While most agreed the superpower clash has no end in sight whether Donald Trump wins or loses in November, ideas on how to position for continued U.S.-China turbulence ran the gamut. Investment picks included Taiwanese tech companies, Chinese high-yield bonds, rate-sensitive real estate bets, and—for one hedge fund manager who sees growing risk of military conflict—a big weighting in cash. Their comments below have been edited and condensed.

Huawei employees wearing protective masks stand behind a display of smartphones.
▲ “Most people are unaware that the Chinese economy has evolved into one that is driven by domestic demand, and not by manufacturing or exports.”
—Andy Rothman
Photo: Huawei employees inside the new flagship store in Shanghai ahead of its opening on June 24, 2020. Photographer: Qilai Shen/Bloomberg

“Most people are unaware that the Chinese economy has evolved into one that is driven by domestic demand, and not by manufacturing or exports.”
—Andy Rothman

Photo: Huawei employees inside the new flagship store in Shanghai ahead of its opening on June 24, 2020. Photographer: Qilai Shen/Bloomberg

Sound is off

Mark Mobius

Mark Mobius

Partner and co-founder at Mobius Capital Partners, who’s been investing in emerging markets for more than four decades. His Mobius Emerging Markets Fund is up 23% over the past 12 months, beating 92% of peers.

We are at the beginning of a long-term dissonance between China and the U.S. It’s not only about trade or the strategic interests in the South China Sea but also a global technological battle.

I don’t think you will see much improvement in U.S.-China relations in the near term. It’s just not going to happen. Many people think the Democrats might be different, but the answer is absolutely not. The Democrats will be as strong as the Trump administration.

We are not getting out of China because there is so much there that is not related to the U.S.-China trade battle. There are many companies in China that are dependent on what is happening locally and not on U.S. trade. So we are focusing on those rather than companies that will be hurt. Next year we expect to be a very good year for China in the 5% to 6% growth range. At the end of the day we want to be exposed to this market.

What we are focused on is health care. It is, of course, a domestic area. We are focused on education names. And, of course, technology. With technology what we have done is gotten access through Taiwan. Taiwan won’t be impacted so much by sanctions.

Andy Rothman

Andy Rothman

Investment strategist at Matthews Asia and a former U.S. diplomat in Beijing. The firm’s Matthews China Fund has outperformed 87% of peers in the past five years.

Most people are unaware that the Chinese economy has evolved into one that is driven by domestic demand, and not by manufacturing or exports. Almost every Chinese company we invest in is a domestic company selling goods and services to local consumers. So this worsening of relations won’t affect them.

A few years ago, we looked carefully at our holdings in China that might have been affected by tariffs applied by Trump and made adjustments to that. So we are constantly evolving at a stock level. Now with discussions about transfer of U.S. technology or intellectual property to Chinese companies, we have already gone through and scrubbed our holdings to avoid that.

For the moment, prospects are better for Chinese companies oriented toward internal growth. While there are risks for companies relying heavily on U.S. IP or technology, there are also opportunities in Chinese technology companies that are trying to be an alternative source for IP and equipment.

My assumption is that the political relationship is going to continue to deteriorate between now and November. It seems to be part of president Trump’s re-election strategy. At the same time, I don’t think it is going to descend into chaos or conflict.

Kelvin Tay

Kelvin Tay

Singapore-based Asia Pacific chief investment officer at UBS Global Wealth Management, which oversaw $2.6 trillion as of the end of July.

Within Asia ex-Japan equities, we are neutral on some markets including China. We have China on a neutral rating because of the fact that we thought that rhetoric will increase about two months back and rightly so, it actually increased. We think that the noise will get increasingly louder in the next couple of months.

The Chinese equity market has done really well. It’s time to do a little bit more of a rotation, and I would re-balance my Chinese equity exposure into Asian high yield and the Chinese yuan relative to the dollar. In Asian high yield, basically 60% is Chinese high yield. So you’re still exposed to China but in a different asset class. This is where we think a lot of the upside is.

If the Democrats take over then we can expect a lot more nuanced foreign policy vis-a-vis the one the Trump administration has. When you’re dealing with a civilization and not just a country, you need to be a lot more sophisticated with regards to your foreign policy and that’s not something the current administration has been able to demonstrate.

Demonstrators in Hong Kong hold placards and American flags during a rally in support of the Hong Kong Human Rights and Democracy Act in October 2019.
▲ “Our worst-case scenario is one in which we see severe tit-for-tat escalations in tension across a wide range of issues including: trade and tariffs, technology, Hong Kong, and the South China Sea.”
—James McCann
Photo: Demonstrators in Hong Kong hold placards and American flags during a rally in support of the Hong Kong Human Rights and Democracy Act in October 2019. Photographer: Chan Long Hei/Bloomberg

“Our worst-case scenario is one in which we see severe tit-for-tat escalations in tension across a wide range of issues including: trade and tariffs, technology, Hong Kong, and the South China Sea.”
—James McCann

Photo: Demonstrators in Hong Kong hold placards and American flags during a rally in support of the Hong Kong Human Rights and Democracy Act in October 2019. Photographer: Chan Long Hei/Bloomberg

Sound is off

Kok Hoi Wong

Kok Hoi Wong

Founder and chief investment officer of APS Asset Management. The firm’s China strategy oversees $2.6 billion. Its China A Share Fund is up 33% this year.

The U.S. has been using Taiwan to provoke China. Military exercises can lead to accidents which in turn can lead to a military confrontation. Even a military skirmish would cause equity markets to crash because markets are already at elevated valuation levels, Covid is seeing flareups in many parts of the world, economic recovery will be pushed out further, interest rates likely to react up, and so on.

We have positioned our portfolios defensively by holding high cash and recession-proof stocks like cybersecurity.

Cathie Wood

Cathie Wood

CEO and chief investment officer of ARK Invest. The firm’s actively managed ARK Innovation ETF has soared more than 400% over the past five years.

It’s two steps forward, and one step back. I don’t think President Trump wants to risk this economic recovery from the coronavirus crisis, and to be blocking China would be harmful. He won’t be full-out in terms of the tech war, but will continue to sabre-rattle. That’s partly because it’s an election year. There’s more about election-year campaigning in this than many people understand.

James McCann

James McCann

Senior global economist, Aberdeen Standard Investments, which oversaw $562.9 billion as of June.

All signs at present point toward a further deterioration in U.S.-China relations. There has been a deeper shift in U.S. public and political opinion toward China over recent years, which points to continued confrontation around a range of trade, technology, security and geopolitical issues. These tensions seem to reflect a deepening strategic rivalry between these global superpowers, which looks likely to build as China continues to increase its economic and political influence.

Our worst-case scenario is one in which we see severe tit-for-tat escalations in tension across a wide range of issues including: trade and tariffs, technology, Hong Kong, and the South China Sea. This would clearly be disruptive for economic activity in the U.S., China and beyond. It would severely dampen consumer and corporate confidence and weigh on market sentiment. We are monitoring waymarks which might tell us that the portfolio adjustments required for this worst-case scenario are necessary.

We regularly stress test our portfolios against a range of global macro risks, including a much deeper confrontation between China and the U.S., to try and understand how they would respond in this environment and ensure that they are resilient to shocks. Should we see signs that the relationship is deteriorating sharply, we would expect diversifiers, such as long Japanese yen, for example, to perform strongly and could look at implementing more specific trades which would target affected companies and assets.

A vessel loaded with shipping containers approaches the Yangshan Deepwater Port in in Shanghai.
▲ “It shouldn’t be ‘Is China losing or is China winning?’ That is not the right question to ask. The right question is what kind of companies or industries would be the winners going forward in the decoupling scenario.”
—John Lau
Photo: A vessel loaded with shipping containers approaches the Yangshan Deepwater Port in in Shanghai. Photographer: Qilai Shen/Bloomberg

“It shouldn’t be ‘Is China losing or is China winning?’ That is not the right question to ask. The right question is what kind of companies or industries would be the winners going forward in the decoupling scenario.”
—John Lau

Photo: A vessel loaded with shipping containers approaches the Yangshan Deepwater Port in in Shanghai. Photographer: Qilai Shen/Bloomberg

Sound is off

John Lau

John Lau

The head of Asia equities at SEI Investments, which has about $330 billion under management.

This trade war has been ongoing for the last two years. I don’t think people really expect it to improve, including myself. It’s more structural in nature. The trend is there will be a decoupling between the U.S. and China. The question then becomes how do you deal with that, the longer-term decoupling of supply chains and economies. That trend won’t reverse whether there is another president in the U.S. or not.

It shouldn’t be a broad, black-and-white issue. It shouldn’t be ‘Is China losing or is China winning?’ That is not the right question to ask. The right question is what kind of companies or industries would be the winners going forward in the decoupling scenario. We have a lot of those in the case of technology-supplying in China. We are looking at local suppliers based in Shanghai and other major cities.

China has 1.3 billion people and so has enough size to support its own supply chain. They have the full demand they can drive to develop their own industry. Rather than taking supplies from the U.S. and other western countries, China would probably start to do more and more on its own, through the entire supply chain.

Henry McVey

Henry McVey

The head of global macro, asset allocation and balance sheet investments at KKR & Co., which oversaw $222 billion worldwide as of June.

We’re trying to grow our allocation in Asia to real estate and infrastructure. The U.S.-China relationship will create more volatility, and that will create an opportunity for us to lean in. We remain in the camp that rates are going to stay low, and that drives our thinking around infrastructure and asset-based finance and real estate credit. You want to be leaning in during uncertainty.

People dine near the entrance of an Apple store during lunch hour in the Lujiazui Financial District in Shanghai on March 20. Photographer: Qilai Shen/Bloomberg
▲ “In this part of the world, we see growing evidence of recovery. China was first in, first out and it seems this is not just a blip.”
—Fred Hu
Photo: People dine near the entrance to an Apple store during lunch hour in the Lujiazui Financial District in Shanghai on March 20, 2020. Photographer: Qilai Shen/Bloomberg

“In this part of the world, we see growing evidence of recovery. China was first in, first out and it seems this is not just a blip.”
—Fred Hu

Photo: People dine near the entrance to an Apple store during lunch hour in the Lujiazui Financial District in Shanghai on March 20, 2020. Photographer: Qilai Shen/Bloomberg

Sound is off

Fred Hu

Fred Hu

The former head of Goldman Sachs Group Inc.’s Greater China business and founder of Primavera Capital, a private equity firm that has invested in Ant Group and TikTok owner ByteDance Ltd.

Clearly this has been a main campaign tactic for the Trump administration. But I worry that this will also be a long-term secular trend that the two largest economies continue on a course of collision and confrontation.

The continuing deterioration of the bilateral relationship has created tremendous uncertainty and risk for businesses and financial markets. We see rising geopolitical tensions, but all in all as rational investors we still focus on fundamentals. In this part of the world, we see growing evidence of recovery. China was first in, first out and it seems this is not just a blip.

The new economy sector has been a beneficiary of the pandemic. On the whole, I remain bullish. We continue to favor consumer facing, service oriented, technology enabled businesses.

Mike Shiao

Mike Shiao

Chief investment officer for Asia ex-Japan at Invesco. His Invesco Asia Consumer Demand Fund has outperformed 91% of peers this year.

We’ve been focusing more on domestic consumption in the Chinese market. In China’s hardware or upstream semiconductor space, we are underweight because we are wary of the sanctions.

No matter how these trade tensions or talks are going, it’s unlikely that we’ll see an extreme scenario. No matter how these two countries’ politicians think, they still put economic growth as the first priority. So that’s the common ground. We will not run into a situation where we will see a big crash. In our business, for example, China needs to continue opening up its financial market. For the U.S., it’s the same. They continue to buy things from China. Why? There is no complete substitute.

Outside of the particular companies like Tiktok, Tencent and Huawei, outside of tarriff increases, I actually think it’s business as usual for many companies. Our clients still see strong interest toward Chinese equities.

Updates Andy Rothman section to use the Matthews Asia brand name.

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