The U.S., because of its business-friendly policies and the world’s deepest and most liquid capital markets, has long attracted global investors. But amid geopolitical turmoil and concern about debt, investors may be increasingly turning to China.
“When there’s a hit to the system, do you want to be with the anti-fragile or the profit-maximizing?” economist Louis-Vincent Gave asked at the Fortune Leaders Forum in Macau on Sept. 8. “This is where, increasingly, the markets are starting to diverge, where you’re looking at the U.S. Treasuries delivering horrible returns, and Chinese government bonds delivering very good returns.”
The yield on the benchmark 10-year Chinese government bond currently sits below 1.7%, far beneath the 4.8% offered by the 10-year U.S. Treasury note. Bond investors are growing wary of debt across the Western world: U.S. national debt now sits at $40 trillion.
That means Chinese government bonds, buoyed by deflation and a vast pool of domestic savings, are offering investors a safe-haven asset.
China is now reaping the fruits of its investments in social stability, says Gave, founding partner and CEO of Hong Kong–based financial services firm Gavekal. “Ninety percent of the time, when things go well, you want to be [invested] in the U.S,” he noted. “But the 10% of times where it goes badly, you want to be in China.”
