Bloomberg TV - 5 Apr 2023

1 min
April 17, 2023
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Link to the video: Toscafund HK's Tinker on Markets

A welcome trip back into the Hong Kong studios of Bloomberg, after a long hiatus due to Covid. Slightly surreal as it was a public holiday in Hong Kong (Qingming, or grave sweeping day), which coming in Easter week meant that Hong Kong was (relatively) deserted and I was the only guest in the studio! Still it allowed for a good amount of time to talk with David Ingles about some of the longer terms themes, specifically De-dollarisation and the difference between the Financial Capitalism of the $ zone and the Industrial Capitalism of Asia.

Key points.

1) Do not confuse less use of the $ with its Reserve Currency status - this is about third parties eg China and Saudi Arabia doing bi-lateral trade and bypassing use of the $. Arguing that the $ won't lose its Reserve Currency status is missing the point. It is about $ usage.

2) Global Trade is $6trn a year - daily trade in the FX markets is $6trn a day. Halving the use of the $ for the former will have inevitable impact on the latter and all the markets tied to it. The growth of the Petro$ post 1971 led to the growth of the Euro$ markets. Similarly, the shrinking of one means the shrinking of the other.

3) Emerging markets now means everything outside of a new $ zone ( within which ironically the US$ will likely crowd out Euros and Sterling) and a different economic model. The west, or $ zone is financial capitalism, while the rest (non dollar zone) is Industrial capitalism. The latter is 'cleaner' and easier to understand from investment fundamentals, eg cash flow, balance sheets, margins, asset turns etc, while the former is going through some complex unwinding of carry trades and financial leverage.

4) While China/Asia did lock down under zero covid,, that is now past, but unlike the west it did not misallocate capital with a decade of zero interest rates, nor has it now  constrained itself with ultra high energy prices thanks to zero carbon. As such it looks an increasingly attractive place for capital to flow.

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Market Thinking May 2023

Markets are largely range bound, albeit the previous strong correlations have broken so that some are at the top of recent ranges while others are at the bottom. This is contributing to an overall feeling of uncertainty, compounded by lack of direction from central banks, Geo Politics and muddied economic data.

De-Dollarisation is a process not an event

Completing a trio of recent external press articles/videos. A discussion (again) on de-Dollarisation and the split between the Financial Capitalism of 'the west' and the industrial capitalism of 'the rest'

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