INTERVIEW Dollar-dominated global order is 'fading away': Ray Dalio U.S. investor bullish on ASEAN, India as globalization benefits neutral powers Ray Dalio, the founder of hedge fund Bridgewater Associates, speaks with Nikkei. (Photo by Emily Hey) MOMOE BAN, Nikkei staff writerJanuary 17, 2023 19:08 JST NEW YORK -- With the dollar losing clout and the world dividing into competing currency and economic blocs, American investor Ray Dalio said it will be countries less vulnerable to global conflict like those in Southeast Asia that prosper in coming years. Dalio, who founded the $150 billion U.S. hedge fund Bridgewater Associates, said that the current world order is changing in ways more similar to the time leading up to and during World War II than the post-war period. "We are seeing each country's populism and nationalism growing in preparation for greater conflicts," he said. He compared what is happening today to pre-war Japan. A global financial crisis and economic depression pushed Japan toward nationalism and "conflict with outside powers, most importantly the United States," he said. "A study of past wars and logic shows that those who were in the wars were greatly harmed, and those who were not involved in the wars prospered," he said, explaining that neutral countries have typically fared better than even the winners. Despite this, remaining neutral "will become increasingly difficult," he said. Dalio saw greater risk and consequences for a war today than during the Cold War, "because the Soviet Union was never a comparable power to the United States" economically. China has emerged as that economic rival, he said. And then there is the matter of the dollar's declining clout. The era of a "dollar-dominated world order" and a globalized economy was "fading away," Dalio said. "We are now going to have the major powers and their allies form economic, currency, and military blocs." In addition to the U.S., Europe and Japan -- both mature economies home to key currencies -- "have run up very large debts and have developed a dependence on their central banks to print money to buy the government debts," he said. The increase in debt monetization "will mean that holders of debt assets will get bad inflation-adjusted returns," he added. He instead recommended investing in countries that have sound finances, have no serious internal conflicts, are less vulnerable to international war, and are continuing to innovate. His list included members of the Association of Southeast Asian Nations like Indonesia and Vietnam, as well as India and countries in the Saudi Arabia-led Gulf Cooperation Council. "Those desiring globalization will now look beyond the United States, China and Europe," he said. "Anti-globalization will be true in the major powers and those aligned with them," but neutral countries that serve as "havens for globalists" will see great prosperity, he said. Mexico is one example. "You're seeing a movement of production from China to Mexico because it's cheaper and they can export easily into the United States," he said. Dalio identified 2024 as a particularly risky period, given the presidential elections that year in both the U.S. and Taiwan. "Taiwan is the only major risk point for war between the U.S. and China," he said. While stressing that neither the U.S. nor China wanted war, Dalio said he did not think "China will tolerate a separation [with Taiwan] forever." He predicted that China will attempt to resolve the issue before the end of Chinese leader Xi Jinping's presidency. Japan's best bet in navigating such geopolitical challenges will be to bolster its defensive capability so it is not dependent on the U.S., all while maintaining trade, Dalio said.
Last year, Dalio was extolling the virtues of China and promoting Chinese bonds as the coming substitute to US Treasuries. In a couple of months, he will have forgotten about Vietnam and Mexico, let alone Saudi Arabia.
China 10 Year yield is 2.909% while US 10 Year is 3.817%. In classic interpreation, China goverment bond is more safer than that if the US, even if China Sovereign rating is A+.
Agree with the general suggestion that the world is more like pre war than post war. Growing nationalisms are a sure sign. The US$ as defacto global trade currency is a remnant of post WWII dominance but a burden for the rest of the world. I'd naively considered that Bitcoin could become the agreed upon dematerialized "gold" standard, but even BTC evangelists dismiss that idea. I don't believe much in the suggestion of investing in developing nations, primarily because their level of corruption is uncontrollable and in the event of a major war among dominant powers it's hard to believe these minor nations will be able to stand by neutral.
You know guys, some time ago I really believed all this narration about "shifting" of "main player" to China or SE Asia in general. It really sounds convincing. But it was till the moment I started travel around here (SE Asia), talk with ppl, see how they live, what's their approach etc., even live for some time (exactly in Vietnam). I'm telling you - no way that part of world with rule or dominate or go crazy developed in any time soon. And it's not only about how big the gap is in development between this place and current "main players" - it's mostly about the gap in mentality. But I'm telling more about the places that are the most influenced by China. There are other places that have chance, but still - long long road. Although - I agree with the narration that there will be shift from dollar (if US won't do something, like even unfortunately some wide spread war to protect the status quo). Just that shift won't be to this direction (SE Asia).
The real problem in Asia is that they are very insular. Their economies are essentially a type of nationalist capitalism. Taiwan, South Korea even Japan have very restrictive import rules & currency controls especially after the currency collapses during and after the GFC. As it currently stands these countries are not interested in trade only trade that benefits them.
We said the same of Japan in the late 80s. The US is certainly in "self destruct" mode right now, but China has it's own set of more protracted issues.