A current systemic risk is the continued asymmetric globalization between the US and China. Remember the "Chimerica" meme that was the rage in the post-WTO period. That is over. Asymmetric globalization may not be shock threat, but it is a risk that drive markets lower.
China would like to disconnect with the West but still accept capital, western institutions, and technology on its own terms. China would like sell goods to the West and only import capital goods that will further improve their terms of trade or technology. China would like to control commodity imports to ensure that they are not dependent on other countries. Trade will have to be strategic. The US would like to be more strategic with China trade, but the particulars are less clear.
A key tension between countries is the move to globalization versus a form of modern mercantilism. In the case of the US and China, there is often globalization rhetoric and mercantilist behavior. The producer country wants to have open markets but also control its internal positioning against multinational control. The importing country would like more control over imports but realize the cost of import limits in the short run are high.
The asymmetric globalization becomes more obvious when culture and political systems clash, but it exists in many countries - a desire to be export globalists but import mercantilists. Asymmetric globalization is also played-out at the class level. Rich countries or rich educated individuals are clearly more pro globalization than poor countries and less educated classes where the benefits may not seem as clear.
This asymmetry affects all global and EM equity and fixed income benchmarking. It also affects all companies that have China revenue and capital exposure or China companies that have listed in the US. How should you allocate capital when this country threat exists? If you have not addressed this question, you are behind the curve in your asset allocation.
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