In the market: In Asia, people are asking

In the market: In Asia, people are asking
In the market: In Asia, people are asking

A European private wealth manager in Hong Kong told me last week that he recently got the catalyst he needed to land a Taiwanese billionaire’s account: geopolitics.

The billionaire was left with just two major wealth managers – UBS and JPMorgan Chase – after the demise of Credit Suisse last year. He wanted a third bank, but did not want to increase his exposure to Americans.

According to the banker, the Taiwanese tycoon’s concern stems from the uncertainty caused by tensions between China and the United States: What would happen if Americans turned against people like him, or if American banks suffered pressure to withdraw from the region?

In recent years, as Sino-US sabre-rattling has increased, I have repeatedly heard from US sources about how companies and investors are divesting from China, strengthening the resilience of their supply chains, reduced their exposure and granted a higher risk premium to their activities in this country. China remains too important a market to ignore or abandon, they say, but they need a fallback, a China plus 1.

In recent days in Hong Kong and Singapore, conversations with more than a dozen high-level bankers, officials and investors have shown that the same de-risking is happening halfway around the world, with the same urgency. People are wondering what their “America plus 1” is.

High-net-worth individuals, like the Taiwanese billionaire, are diversifying their assets and exposure outside the United States. Companies are seeking additional sources of financing in other parts of the world, such as the Middle East, and building factories in regions such as Southeast Asia. They are also considering how to reduce their dependence on the dollar, these sources said. The sources requested anonymity to speak freely due to the sensitivity of the subject.

These conversations provide insight into the impact of geopolitics on investment decisions in the East. And as these concerns lead to action, they highlight the risks of increased fragmentation of the global economy, with attendant consequences such as inflationary pressures.

However, it is also clear from these conversations that such decoupling is unlikely to be complete and will take years, if not decades, given the dollar’s dominant position. A top banker in the region said companies and investors from Asia still want access to the United States, which is the world’s deepest and most liquid market.

But there appears to be a new urgency around these conversations as people see tensions intensify with measures such as tariffs and sanctions. A Singapore-based banker said that in the past, when people talked about replacing the US dollar, they talked in terms of 20-30 years; today, they are talking about 10-15 years.

US sanctions following Russia’s invasion of Ukraine made Western authorities aware that they could seize assets in the event of a conflict. Added to this are concerns about the sustainability of the US debt level and the impact on the dollar, the banker said, leading people to ask why I have to hold assets in US dollars.

The conundrum is reflected in the data. The US dollar still represents nearly 60% of foreign exchange reserves, but we are seeing gradual diversification, according to the International Monetary Fund.

And while SWIFT data shows the dollar dominates trade finance with an 84% share, the yuan became the most used currency for cross-border transactions in China last year for the first time.

In Asia, discussions with sources show new efforts are underway to reduce dependence on the U.S. dollar.

The central banks of China, Hong Kong, Thailand and the United Arab Emirates, for example, are developing a cross-border settlement system that would allow participating banks to settle transactions in local currency.

Other central banks should be invited to participate in this system as it develops.

Some companies are also looking for alternatives in the United States. Chinese companies, for example, are looking to regions like the Middle East for financing, said an investment banker at a global lender that focuses on China. He cited electric vehicle maker Nio’s $2.2 billion deal with an Abu Dhabi investor. In the past, this deal would have been with the United States, the banker said.

A senior banking official said companies still wanted to expand into the United States, but those, like fast fashion retailer Shein, were forced to seek an IPO in London after running into difficulties. obstacles in New York, were pushed back.

Geopolitics makes everyone question whether there is a need for an alternative, the banker said, adding that it has “pushed people to make conscious choices.”

While there’s not much that can be done in the short term, the banker said that a decade from now, people are starting to ask themselves: “How much should I to press the dollar?

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