Stuart Katz, Chief Investment Officer, December 29, 2020
As published on wealthmanagement.com
The pandemic this year has forced us as wealth managers to abruptly adopt new technology, rebuild workplace culture, and dramatically rethink how we engage with clients.
But as we head into 2021 with a weakening dollar, there is another force at play positioned to transform our approach to portfolio construction: China’s growing economic prominence and its revolutionizing interplay with technology.
China is moving to weaken its technological dependence on the U.S. It’s reshaping supply chains, developing STEM human capital expertise, capturing data flows, and diverting its industrial subsidies from real estate and traditional infrastructure to the high-tech arena.
We can see how China is reshaping the investment landscape with its intention to overtake the U.S. as the world’s largest economy. What we fail to appreciate, however, is how that shift has blurred the lines of our geopolitical, physical and virtual worlds—and how it has uncovered a new breed of thematic investment opportunities.
There are several trends behind this emerging picture. The first concerns our domestic antitrust policy, which has led to the U.S. Justice Department’s recent suit against Google over its search engine dominance and threatens to dismantle monopolies of large tech companies.
That bipartisan effort, however, is at odds with a movement in China to “partner” with major tech companies to help ensure their status as global competitors. China is bolstering its state-operated capitalistic system while we potentially impair ours by failing to recognize how geopolitical competition intersects with technology.
Secondly, we have overlooked the rise and evolution of “digital sovereignty.” We consider the role of geopolitical sovereignty—defined by physical borders—but gloss over the importance of our digital borders, defined by such things as the reach of our cybersecurity or the location of our servers.
Lastly, we can see philosophical differences among countries in terms of how they evaluate the impact of technology—with the U.S., most notably, defined by its prioritization of privacy, accountability and transparency.
While we might insist on “digital rights” to create an open and secure environment for sharing personal information in the U.S., technology is likely to advance more quickly in countries willing to compromise such status, further blurring lines on issues of technology and national sovereignty.
China is committed to be becoming an economic superpower, and technology is no longer a single, easily defined industry, but a pervasive catalyst across durable industry trends, from clean energy to healthcare innovation to digital yuan electronic payments. For wealth managers, this means we are approaching a moment of crossover in how governments and companies compete on a global scale—and that brings opportunities.
Advisors may consider increasing exposure to emerging markets, with access to active managers investing in artificial intelligence, cybersecurity, payments, 5G, clean energy, semiconductors, digital infrastructure and the growing middle-class consumer. This could be accomplished by investing in the fixed income and equity of certain growing and profitable Chinese companies who need access to non-Chinese capital to fuel their growth.
Our lens has changed and technology is now the underlying accelerant to our geopolitical, digital and financial evolutions. We need to re-evaluate our traditional framing of portfolio construction and asset classes, and consider durable emerging market megatrends—or we’ll get left behind.
Stuart Katz is CIO of Robertson Stephens, a wealth management firm striving to provide comprehensive and innovative investment solutions and wealth strategies to its clients through an intelligent digital platform.
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