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Blackrock warns US-China tensions primed to get worse

“Issues between US and China are structural and persistent and as such will continue regardless of who wins in November.”

Chief investment officer at Platinum Asset Management, Andrew Clifford, agrees the relationship between China and the West has changed permanently, but believes the world is so globally intertwined that economic interests would continue to trump political disputes. Platinum has about $4.5 billion, or 17 per cent of assets, invested in Chinese-listed stocks.

“The US is wanting to redefine that relationship with China, and I think that will be on-going whoever is in power,” Mr Clifford said. Meanwhile, he warned that markets and economies were on different trajectories, and a recovery could take up to five years.

Platinum Asset Management's Andrew Clifford. Re-starting economic activity is a political decision, he says.

Platinum Asset Management’s Andrew Clifford. Re-starting economic activity is a political decision, he says. Credit:Bloomberg

“Economies do get better from here, even with secondary shutdowns. But, even with a vaccine out tomorrow, we are not going to be back at levels of activity that we were at the start of the year.”

The pandemic has also forced a revolution in central bank policy, according to Mr Powell, who cited the US Federal Reserve’s move in March to step in and keep financial markets from freezing as a sign of policymakers willing to do what it tto contain the economic damage.

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As the global economy tackles the turbulence, Blackrock is tipping European equities and corporate debt to deliver the best returns in coming months

“We upgrade European equities to overweight as the most attractive exposure to a cyclical uptick,” Blackrock Investment Institute’s latest mid-year report states.

“We cut US equities to neutral after a stretch of outperformance as we see risks of fading fiscal stimulus and election uncertainty.”

Investment-grade corporate debt is seen as a good option because central banks would support low rates and yields would make up for the risk of collapse.

Singapore-based Mr Powell says the virus remains ‘’extremely serious’’ but must be balanced with re-starting economic activity. It remains a political balancing act between the spread of COVID-19 and avoiding economic depression.

“If the [virus] data changes then politicians will have to course-correct in real time, so that balancing act is genuinely very hard,’’ he said.

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