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 fell to two major wealth managers – UBS and JPMorgan Chase – following Credit Suisse’s bankruptcy last year. He wanted a third bank, but didn’t want to increase exposure to Americans.
The Taiwanese tycoon’s concern, the banker said, stems from the uncertainty caused by tensions between China and the US: what if Americans turned against people like him, or if US banks came under pressure to pull back on business in that country? ?
In recent years, as the conflict between China and the US has escalated, I have heard repeatedly from sources in the United States about how companies and investors are de-risking China, building resilience in their supply chains, reduce your exposure and place a greater risk premium on the businesses there. China is still too big a market to ignore or abandon, they say, but they need support, a “China plus 1”.
Over the past few days in Hong Kong and Singapore, conversations with more than a dozen senior bankers, employees and investors show that the same de-risking is happening at the other end of the world with equal urgency. People are asking what your ‘America plus 1’ is.
Wealthy people like the Taiwanese billionaire are diversifying their assets and exposure outside the United States. Companies seek additional sources of financing from other parts of the world, such as the Middle East, and build factories in places such as Southeast Asia. And they are thinking about how to reduce their dependence on the dollar, these sources said. The sources requested anonymity to speak freely due to the sensitivity of the matter.
These conversations provide a window into how geopolitics are impacting investment decisions in the East. And as these concerns lead to action, they highlight the risks of further fragmentation of the global economy, with attendant consequences such as inflationary pressures.
However, it is also clear from these conversations that any such decoupling is unlikely to be complete and will take years, if not decades, given the dollar’s dominant position. A leading banker in the region said companies and investors in Asia still want access to the United States as the world’s deepest and most liquid market.
But there appears to be a new urgency around these talks as people see tensions rise over measures like tariffs and sanctions. A Singapore-based banker said in the past that when people talked about replacing the US dollar, they talked in terms of 20-30 years; now, they say 10 to 15 years.
US sanctions following Russia’s invasion of Ukraine have brought to light the realization that Western authorities can confiscate assets in a conflict. This has been compounded by concerns about the sustainability of US debt levels and the impact on the dollar, the banker said, leading people to ask “why do I have to hold US dollar assets?”
The enigma can be seen in the data. The US dollar still represents almost 60% of foreign exchange reserves, but there has been a gradual diversification away from it, according to the International Monetary Fund.
And although SWIFT data shows that 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 that there are more efforts underway to eliminate this dependence on the US dollar.
Central banks in 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.
It is expected that more central banks will be invited to join as the system develops.
The search for alternatives to the United States also occurs among some companies. Chinese companies, for example, looked for financing in places like the Middle East, said a China-focused investment banker at a global lender. He highlighted electric vehicle maker Nio’s $2.2 billion deal with an Abu Dhabi investor. “This would have gone to the US in the past,” said the banker.
A senior banking executive said companies still wanted to come to the United States, but those like fast fashion retailer Shein – forced to pursue an initial public offering in London after facing hurdles in New York – were being turned away.
Geopolitics is making everyone think “I need to have” an alternative, said the banker, adding that this “has pushed people to make conscious choices”.
While there is little that can be done in the short term, the banker said, looking ahead a decade, people are starting to ask: “How much can I lean on the dollar for?”
(Reporting by Paritosh Bansal; Editing by Anna Driver)
