We are in “an investment environment that is simultaneously attractive and terrifying”, Cheah Cheng Hye, the co-founder of one of Asia’s largest independent fund managers, tells Bloomberg.
Capitalism is in a systemic crisis: too much financial engineering means that we are just borrowing from the future; giant monopolistic companies dominate economies around the world and stifle competition; and monetary policies based on too much liquidity and negative interest rates are contributing to a gulf between a very small, wealthy elite and the majority of people who are seeing no increase in their income. “This is fomenting social crises and unrest all over the world.” And tribal politics are making matters worse, threatening globalisation and free trade.
At the same time we have “bubble economics”. Central-bank money printing is distorting prices and pushing up markets. It’s a dangerous atmosphere – “but one where you still need to keep investing”. Abundant liquidity and “zero tolerance for market failure” by central banks and governments “imply that the party will continue for quite a while”.
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So investors should continue to hold equities, including China, where Cheah believes the completion of the first phase of a trade deal with the US will be positive for the renminbi. But since we can never know exactly when the next crisis will hit, it’s prudent to hedge these more aggressive investments by still keeping part of a portfolio in defensive assets, such as gold and cash.
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