Ray Dalio, the founder of Bridgewater, voiced grave concerns about the current China-US relations, terming them as "on the brink of red lines." Speaking at the Greenwich Economic Forum, Dalio recognized irreparable divides between the two economic superpowers, underscoring Taiwan's independence, the global chip industry tussle, and broader geopolitical tensions. Despite these concerns, he remains optimistic that an actual war scenario is improbable, given the devastating repercussions it would entail for both nations.
Bridgewater, under Dalio's guidance, has carved out a substantial niche in the Chinese market. This year, the hedge fund's China-centric funds witnessed impressive returns, notably driven by a surge in the mainland bond market, despite prevailing macroeconomic challenges. The dynamics between Washington and Beijing have increasingly soured due to issues spanning from spying allegations, human rights conflicts, and trade disagreements.
On the economic forecast front, Dalio predicted the 10-year Treasury yields might hit the 5% mark. This stems from his belief that inflation is likely to exceed the Federal Reserve's 2% target, potentially hovering around 3.5%. Dalio suggests that for maintaining a balance between supply and demand, rates should ideally stand 1.5 percentage points above the inflation rate. Supporting this projection, the benchmark 10-year notes recently touched 4.766%, the highest since 2007.
Dalio's insights reflect his deep understanding of both geopolitical tensions and economic landscapes. While highlighting the challenges in international relations, he also offers a glimpse into potential economic trajectories, making his perspective invaluable for investors and policymakers alike.
