In today’s interconnected global economy, what factors do you believe are most crucial for evaluating a company’s long-term potential?
A:
The global economy today is not only interconnected but also weaponized for geopolitical agenda.
To avoid political risk, invest in companies of the US and China only. The companies of the US allies are most vulnerable to political risk. Take ASML for example. When the US heavily-handed structures the global supply chains, ASML has to give up its most profitable market. ASML has no choice but to obey the dictation of the US. Because Holland as an ally of the US, has to sacrifice its national interest for the US geopolitical agenda.
Of course, the US chip industry is subjected to the same injury as the ASML, but they have a choice. They supported the US chip war based on miscalculation. If they know the history of the Cotton King in the Civil War, they can lobby the congress against the trade war. Overall, the political risk of the US companies is smaller than its allies, because they have a huge influence on the US policies.
The companies of China seem to have the biggest political risk as the US geopolitical agenda is targeting China. The US has put thousands of Chinese companies on the list of sanctions. Yet companies in China perform better than companies in the US in the chip war.
Why the US trade war, including the tech war and chip war, against China backfires? The US has a long history of using sanctions as a geopolitical weapon since the Cold War. Cuba is the fossil example of the Cold War sanction. The US usually can achieve its geopolitical objectives with sanctions because the US used to be the largest market in the world.
Sanction as a geopolitical weapon is the privilege of countries with large markets. We never hear North Korea sanction the US, because the market of North Korea is much smaller than the US.
What’s the size of the China’s market? The GDP of China is still second to the US. So the US has the largest market in the world, right? In the international trade, nominal GDP counts. PPP is irrelevant. The US has a huge market for sure. Yet what’s the market for technology and chips? The manufacture. China is the largest manufacturer in the world so is the largest market in the world for technology and chips. When the US sanctions China on technology and chips, the market reality is like China sanctions the US. That’s why we witness the rapid rise of China’s tech and chip industry at the expense of the US and its allies.
So this leads to another factor, companies with larger exposure to China’s market and its CEOs have the intention to stay in China have a larger potential. And the potential is long-term because China has the military capability to safeguard its development environment. The US never won a war against Red China, not in the Koran War, not the Vietnam War, nor in the Chinese Civil War when Red China was still in its embryo form.
When evaluating the geopolitical risk, bet on China. China can endure all front attacks from the US and its allies. If confrontations between the US and China escalate, the US will collapse, not China. We witness the history of China rising and the US declining. The society of China is more stable than the US and its allies, despite the attempted inciting of color revolutions in China. All the US provocation cannot turn the tide back but only accelerates the trend.
