In the long run, Wang believes that artificial intelligence (AI) has a lengthy runway both in China and the US. The likes of Tencent and Alibaba Group should be core holdings despite the volatility of the Trump administration’s policies towards China.
Taking a step back, Wang sees the general direction of the US dollar as weakening against the Singapore dollar because of the policies of the current US administration. “As a US investor in the US bond market, it may not be a big deal. However, for a Singapore investor, you would have a 10% depreciation in the US dollar and a coupon of around 4% for 10-year US Treasuries. As long as Trump is in power, the general trend of the US dollar has been established.”
Wang is referring to the policies led by the likes of Stephen Miran, Trump’s chairman of the Council of Economic Advisers. Most recently, Miran was appointed as a governor on the US Federal Reserve Board. Miran believes the US dollar should weaken and has advocated for a “restructuring of the global trading system”. He argued that the strong dollar policy had harmed manufacturing in the US.
Wang says de-dollarisation is taking place before our very eyes. “De-dollarisation is the gradual and inevitable decline of the dollar in three aspects. Trade, financial and as a reserve currency. These three factors are all related. You cannot be in a global reserve system if you’re not a trade currency.”
See also: China’s factory activity growth slowed, private survey shows
Wang isn’t alone. Tim Murray, capital market strategist in the multi-asset division at T. Rowe Price, also sees the dollar weakening and staying weak.
The Fed recently began cutting interest rates, while most other central banks have stopped cutting or are near the end of their cutting cycles. This means interest rate differentials between the US and the rest of the world are narrowing, which tends to dampen the demand for dollars, Murray says.
Doubts about Fed independence are emerging. “President Trump has taken an increasingly confrontational stance to try to force the Fed to cut rates even though inflation remains elevated. If investors believe the Fed will not keep inflation in check due to political pressure, the dollar is likely to suffer,” Murray says.
See also: China factory activity sees longest slump in almost a decade
The US budget deficit continues to rise as the US government continues to spend significantly more than it collects in taxes. “If a sovereign debt crisis occurs, it could cause the currency to weaken dramatically,” Murray adds.
Declining foreign demand is evident. “Foreign investors — both public and private — have been willing to hold dollars due to the strength of US companies and because the dollar has been the world’s primary reserve currency. But the Trump administration’s stands on trade and foreign policy have dampened the willingness of foreigners to own US assets (particularly US Treasuries),” Murray suggests.
The T. Rowe Price asset allocation committee currently maintains overweight positions in both non-US investment-grade bonds and emerging markets local currency bonds.
Prefer equities to bonds
Over a long-term horizon, Wang reckons investors, including Singapore investors, should continue to invest in US stocks.
“Your bet is stocks, not bonds, strategically, not tactically. Of course, we are worried about valuation. Equities is where you want to be, even if you are a Singapore investor. Even if you face a 5% to 10% depreciation every year, US equities can still give you a double-digit return,” Wang says.
He views US companies, particularly the mega caps, as global entities. Some, such as Microsoft and Johnson & Johnson, carry AAA ratings and hence are rated more highly than US government debt. They just happen to be priced in US dollars.
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China’s tech sector also shows promise. Wang cites China’s premier position in what he terms as low tech, which is industrial tech and advanced manufacturing rolled into one. This includes solar photovoltaic cells, other types of solar equipment, electric vehicle (EV), home appliances, as well as car batteries and parts. “China is likely to continue to dominate in this low-tech area,” he says.
Wang does not appear to agree with IMF economists, suggesting that China needs to transition away from exports. “With Trump’s two trade wars, China’s exports as a share of world exports continue to make record highs because China possesses a real manufacturing competitive advantage. They don’t have just one advantage. They have many advantages,” Wang says.
In addition to efficiency, Chinese manufacturers have built a full supply chain — in Southeast Asia and elsewhere — including making use of the capital markets outside of China.
As an example, Contemporary Amperex Technology Co (CATL) was the largest initial public offering (IPO) in Hong Kong this year, raising HK$41 billion ($6.8 billion). Since its IPO, the company’s share price has risen by 77%. CATL is a battery maker for EVs. Reuters reports there are 129 EV brands in China, but only 15 are likely to be viable by 2030.
“CATL is the world’s number one EV battery maker. That’s an advantage the Chinese have. Hong Kong is an efficient, liquid, global capital market. With the Hong Kong listing, CATL has a greater growth potential outside of China. China provides the manufacturing hub, Hong Kong the capital,” Wang says.
EVs require a supply chain. Even Tesla sources a majority of its components from China. China has two EV manufacturing hubs, Shanghai and Shenzhen. The domestic EV ecosystem is well established, Wang adds.
Core holdings, AI, branding
China is also getting the hang of branding, Wang says. Take Pop Mart and Labubu, or BYD or Huawei.
On the AI front, listed Chinese AI companies, including tech giants Baidu, Alibaba and Tencent, are known for their large language models and cloud services. Beijing Fourth Paradigm Technology Co (4Paradigm) is an AI company founded by former Huawei employees and was listed in Hong Kong in 2023. Yidu Technology and SenseTime, both listed in Hong Kong, are also researching AI.
Wang sees AI-driven advertising and other forms of AI-assisted programmes making further headway in being adopted by big tech. AI-assisted advertising is now more accurate in targeting consumers than it was five years ago. These AI features are being used by Meta and Alphabet. Elsewhere, 30% of Microsoft’s programs are written by AI. The experience on Trip.com — listed in Hong Kong — is also likely to improve with AI, where Trip.com can plan a full trip for the customer by acting almost like a concierge.
As a result of innovation in both the US and China, he believes investors should adopt a barbell strategy with defensives and AI or innovation stocks at each end. In the US, these would include Microsoft, Amazon, Broadcom, Meta and Nvidia.
Within Asia, Wang regards Alibaba, Tencent, Taiwan Semiconductor Manufacturing Company (TSMC) — the foundry that manufactures Nvidia’s chips — as innovation stocks, and China Mobile as defensive. In addition, Wang has included a couple of exchange-traded funds (ETFs) listed in Hong Kong — the CSOP FTSE China ETF and the China AMC CSI 300 ETF Index ETF — in his recommendations.
One of the most liquid ETFs on the Singapore Exchange is the Lion Global OCBC Securities Hang Seng Tech Index ETF (HSTECH).
China — despite its shrinking population — is still a vast country with a huge population and an ideal economy for AI. This provides their big tech companies with both a domestic market and a population with which it can train its AI’s large language (and small language) models.
China faces challenges
So far, so good, but China has enormous challenges. Demographics is one as its population is shrinking. Even if the UN’s alarming numbers do not come to pass, the demographic challenge is even more acute because of the country’s real estate sector.
In an Oct 8 report confirming the still moribund property market, S&P Global says that as China enters its fifth year of a “grinding downturn”, coping strategies have emerged. State-owned firms are outpacing private enterprises due to their access to financing and land in tier-1 cities.
Nonetheless, S&P Global is forecasting residential sales will fall by 8% in 2025 and by 6% to 7% in 2026. China Overseas Land and Investment (COLI) will remain a market leader in tier-one cities; China Resource Land’s disciplined land spending, combined with growth in rental income from its shopping malls, will help control leverage, S&P Global says. However, China Poly Group (Baoli) will continue to clear inventory in lower-tier cities, the ratings agency adds.
The Chinese government exacerbated the slowdown with its three red lines for the property sector, coupled with the Covid shutdown in 2021 and 2022, when the rest of the world was recovering. Under the three red lines policy, developers had to comply with three specific thresholds: a liability-to-asset ratio under 70%, a net gearing ratio under 100%, and a cash-to-short-term debt ratio above 1. According to press reports citing the China Index Research Institute, as of August this year, 77 Chinese developers had defaulted on their debt.
Wang says: “China has a struggling real estate market, slowing consumption and youth unemployment. The real problem is local government debt financing. Local governments generate revenue by selling land.”
Developed economies, such as South Korea, Japan, Taiwan and Singapore, are also grappling with shrinking populations, excluding immigration. But they grew rich before they grew old. “China hasn’t reached developed nation status yet, and it has this demographic problem,” Wang says.
Despite its problems, Wang believes the Chinese economy is very resilient because of its size. “What China needs is cheap energy, cheap oil and natural gas. We need those things from Russia, and we can negotiate a better price, and we can pay them in RMB,” he says. On that score, Russia’s invasion of Ukraine has benefitted China.
Although Trump announced 100% tariffs on China on Oct 9, Wang points out that these tariffs face legal challenges in the Supreme Court, adding to the general global uncertainty.
“Don’t forget our barbell strategy — AI innovation stocks on one end, true defensives on the other. You need both, but now is the time to tilt further toward defensives,” Wang reminds his clients.
