Hollis Johnson/Business Insider
- Ray Dalio's Bridgewater, which runs $160 billion in assets and is the biggest hedge fund in the world, said in a new report on market conditions that a group of Asian countries, led by China, are set to grow much faster than the US and Europe.
- The report projects that the "Asia bloc" of seven countries, led by China, will own a majority of the global stock market by 2035.
- The report also states that the group of countries will become "increasingly inwardly focused and independent" as tensions with the US increase.
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The coming years could see a huge shift across the globe in who owns stocks.
Currently, roughly three-fourths of the global stock market, by market capitalization, is held by countries outside of a bloc of Asian nations that includes China, according to Ray Dalio's Bridgewater.
But in 15 years, that bloc will own the majority of the global equity market, according to a projection from the $160 billion hedge fund's annual report on the markets.
The areas of growth Bridgewater is looking at include China, Singapore, Thailand, South Korea, Malaysia, Hong Kong, and Taiwan.
"This emerging Asia bloc already produces a level of output that is comparable to the US and Europe, combined. And in the past three years, its contribution to global growth has been 2.5 times that of the US plus Europe. Trade between these countries is a bigger portion of their economies than trade between the countries of Europe," the report reads.
Dalio's fund has been bullish on China for years. In 2018, the firm's co-chief investment officer, Bob Prince, told a conference in Toronto that the bloc of Asian nations will grow by the size of Europe's entire economy in just 10 years.
"As an investor you're buying and selling cash flows," Prince said in 2018. "That's a lot of cash flows."
The growth however will not be from increased exports to the United States, the new report states.
"This bloc is increasingly inwardly focused and independent, reflected in its nominal GDP growth substantially outpacing exports over the past decade," the report reads. A battle for geopolitical power between China and the US has already led to sanctions, a trade war, and a ban on one of China's biggest companies, telecomms firm Huawei.
Fellow billionaire hedge-fund founder Ken Griffin recently warned attendees at an Economic Club of New York lunch that the US "has a false sense of security" about maintaining its status as a technology powerhouse.
This group of countries, which Bridgewater states are beneficiaries of China outsourcing labor, is a much more attractive option to invest in than the US or Europe, the report states. While the US is limited by its ability to use monetary or fiscal policy to a revive an economy that begins to falter, emerging Asian countries have a lot of room to grow, Bridgewater believes.
The report projects that China, Thailand, Singapore, and South Korea will experience significant productivity increases over the next 10 years while the US, Spain, France, Italy, and other European nations are either not increasing productivity or becoming more unproductive.
The report does not touch on possible effects from the coronavirus, which has forced factories and businesses to close down to limit the spread of the virus. But in an opinion posted to LinkedIn at the end of January, Dalio stated that the response from China on the virus has been better and more transparent than how the country handled the SARS outbreak when it emerged in 2003.
Despite the response from the Chinese government, coronavirus has already caused more deaths than SARS, as more than 800 people have died as of early February. More than four times as many people have been infected with coronavirus than SARS.
A note from Bridgewater's chief security officer Richard Falkenrath, who previously worked on the SARS problem for the George W. Bush administration, stated that the market reaction to the Coronavirus has been "more severe" than what it was for SARS.
"At this point, the coronavirus has the potential to be the most significant medical disruption in decades, but the cone of outcomes remains wide," the note from Falkenrath reads.