The UBS House View Monthly presents the latest version of the UBS Investment House View, assessing the impact of current economic trends on asset classes and portfolio allocation.
In the early 1950s, the US security establishment debated how to conserve America's "wasting asset" of nuclear superiority, and even considered preemptively striking the Soviet Union before it developed a hydrogen bomb.1
Seven decades later, the Trump administration is thinking about how it can act to conserve another wasting asset – America’s relative economic size and geopolitical influence – against the rise of China, whose economy is on course to overtake the US's in the next two decades,2 and on some measures is already larger (see Fig. 1).
Trump administration documents reveal perceptions of China working to "shape a world antithetical to US values and interests….displace the United States in the Indo-Pacific region, expand the reaches of its state-driven economic model, and reorder the region in its favor.3" We think that part of the recent weakness in Asian markets is down to investors starting to price in the idea that the US conflict with China will not be resolved with a "deal" before the mid-term elections.
China, meanwhile, is under time pressure of its own. After two decades of impressive growth, Beijing is trying to rebalance its economy, develop next generation industries, and reduce debt-to-GDP levels, all before the next global downturn.
Global Chief Investment Officer Wealth Management
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