Monday, February 18, 2019

The Chinese and U.S. economies, Brexit

Yngve Slyngstad is CEO of Norway's sovereign wealth fund, the worlds largest at $1 trillion. Jonas O Bergman and Sree Vidya Bhaktavatsalam of Bloomberg Markets interviewed him on a wide range of topics pertaining to the fund. Here are some remarks on the relationship between China and the U.S.:
BM: The other risk is obviously what’s going on with the trade disputes with the U.S. You have said that you see a potential risk of two global supply chains emerging from this dispute. Who do you think would be the biggest losers or winners from a disruption of the system that we’ve had?

YS: Currently, the Chinese economy and the U.S. economy are very intertwined. It is hard to see how it can be unwound, which I think is a very positive thing in the bigger scheme of things. But if even on a smaller scale companies start to diversify their production—which already is happening—and that is combined with the move toward more automation, that will mean quite a lot of new investments for all of the companies. Which, of course, will affect their profitability. It’s not necessarily easy to see what is the short-term and the long-term effect of all those things.

BM: What are you anticipating?

YS: In November I had a trip to China to look into the specific issue with regards to the production chain. We visited companies such as Foxconn and many other semiconductor producers. There’s a division of labor between the U.S. and China and benefits from the global production chain in key components that I think will lead, more or less by economic logic and necessity, to a mutually beneficial relationship between those two large economies. The thought of disintegration to regional production chains I think is less likely.

From our perspective, as a long-term-oriented fund, the big driver of the economy and of our investment results is development in technology more than political decisions. Most of the people in the market will now typically say the biggest risks will be trade disputes between China and the U.S., the status of the EU and Brexit, and the fiscal strength of some of the countries. But in a longer-term perspective, I don’t think any of those risks are high on our agenda.
On Brexit:
BM: You have large investments in the U.K., so how concerned are you about the uncertainty surrounding the Brexit deadline at the end of March?

YS: We should have expected two years ago that the peak of this uncertainty would be in March 2019. The longer perspective in our view is still that we are invested in the U.K. with a long-term horizon. How much we will invest will not be changed depending on the result of this development. If we look past this—10, 20, 30 years—the U.K. will be an important economy in Europe, and it will remain in Europe. We expect business on that timeline to develop positively no matter the outcome.

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