By Paritosh Bansal
(Reuters) – 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 the Americans.
The Taiwanese tycoon’s concern, according to the banker, stems from the uncertainty caused by Sino-US tensions: what if Americans turn on people like him, or what if US banks are under pressure to withdraw from their activities over there ?
In recent years, as tensions between China and the United States have escalated, I have repeatedly heard from sources in the United States that companies and investors are reducing China-related risks, strengthening resilience of their supply chains, reduced their exposure and placed greater emphasis on China. risk premium for companies there. China is still too important a market to ignore or abandon, they say, but it needs reinforcement, a “China plus 1”.
Over the past few days in Hong Kong and Singapore, conversations with more than a dozen senior bankers, officials and investors have shown that the same de-risking is happening halfway around the world with the same urgency . People wonder what their “America plus 1” is.
Wealthy people like the Taiwanese billionaire are diversifying their assets and exposure away from the United States. Companies are seeking additional sources of financing in other regions of the world, such as the Middle East, and building factories in countries such as Southeast Asia. And they are 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 a window into the impact of geopolitics on investment decisions in the East. And as these concerns are translated into 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 Asian companies and investors still want access to the United States, 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 to 30 years; now they are talking about 10 to 15 years.
US sanctions following Russia’s invasion of Ukraine have raised awareness that Western authorities can seize assets in the event of conflict. This situation has been compounded by concerns about the sustainability of US debt levels and their impact on the dollar, the banker said, leading people to ask “why should I hold assets in US dollars?” »
The puzzle is visible in the data. The US dollar still accounts for almost 60% of foreign exchange reserves, but there has been gradual diversification, according to the International Monetary Fund.
And while SWIFT data shows the dollar dominates trade finance with an 84% share, the yuan last year became the most used currency for cross-border transactions in China for the first time.
In Asia, discussions with sources show more efforts are underway to reduce this 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.
More central banks should be invited to join as the system develops.
Some companies are also looking for alternatives in the United States. Chinese companies, for example, were looking to countries like the Middle East for financing, said a China-focused investment banker at a global lender. He pointed to electric vehicle maker Nio’s $2.2 billion deal with an Abu Dhabi investor. “In the past, this would have been aimed at the United States,” the banker said.
A senior banking industry official said companies still want to expand into the United States, but those, like fast fashion retailer Shein, forced to seek an IPO in London after hitting roadblocks in New York , were rejected.
Geopolitics makes everyone wonder “should I have” an alternative, the banker said, adding that it has “pushed people to make conscious choices.”
While little can be done about it in the short term, the banker said, looking back over a decade, people start to ask, “How much should I rely on the dollar?”
(Reporting by Paritosh Bansal; editing by Anna Driver)
