Davis Hall, Indosuez Wealth Management’s newly appointed Asia head of capital markets, expressed his convictions about Chinese government bonds becoming the new safe haven in the coming era.
«I think the new ultimate safe haven of this decade will be Chinese government bonds,» Hall said in a virtual conference earlier today.
With increasingly less currency risk coupled with a 250 basis point premium compared with U.S. 10-year bonds which pays very limited coupon, Hall noted that investors are only now starting to see the attractiveness with the yield pick-up evidenced by increased foreign ownership, albeit from a low base.
U.S. Elections Irrelevant
Hall believes that the yuan’s rise will come at the expense of the U.S. dollar and it will occur regardless of the outcome in the upcoming elections. Although a win by incumbent Donald Trump could create a rebound for the greenback, Hall notes that the longer-term outlook remains intact.
«No matter who wins the U.S. presidency, we still think this is the end of U.S. exceptionalism,» he said. «It is the beginning of the end of the dollar as the global reserve currency. And we are already seeing, for example, that the Chinese currency has gone from 1 to 2 percent in the portfolios of central bank reserves.»
Gold as Hedge
In addition to the overall trajectory, Hall also expects more loosening by major central banks including the U.S. which, given existing money supply, is likely to result in more inflation and tailwinds for hard assets.
Although Hall believes that gold is no longer an easy one-way bet, he still highlights key characteristics of the asset class that will help it remain resilient.
«The underlying elements of gold are very important,» he said, adding that the bank prefers physical gold over paper gold. «Can’t be printed. No liabilities. No central bank. And there’s still a great deal of demand.»
