By Jules Rimmer
‘When China walks into the room, the profit walks out,’ is Gave’s description of who will AI battle
Has U.S. exceptionalism peaked? In a word: yes. So says Louis-Vincent Gave, founding partner and chief executive officer of Gavekal Group, founded in 1998 and headquartered in Hong Kong. Gave is of the opinion that a massive rotation out of U.S. assets is underway, after many years of outperformance from its equity markets and the dollar.
Gave has established himself as a leading commentator on macroeconomics and market analysis and his high-conviction insight at present is that pension funds and institutional investors globally are overweight the U.S. and needing to reduce their exposure. One of the problems Gave identifies, though, is that a lot of this outsized U.S. exposure is concentrated in illiquid assets: private debt and equity, real estate or venture capital. Since these are not easily sold, funds are obliged to liquidate what they own that’s listed: “You sell what you can, not what you should.”
Gave doesn’t predict the demise of the dollar DXY as a reserve currency but puts the decision on the dollar in straightforward terms: going forward, is more or less of the world’s trade going to be transacted in dollars? He opines bluntly: “Less.” And since, as he notes “markets don’t believe in absolutes and markets are made at the margin” this will result in a weaker dollar.
Right now, he perceives the growth in global trade is between and toward China and the Global South and he cited many examples of new Chinese export markets that were developing from electric vehicles, to earthmovers, nuclear power plants and even Chinese jets. Gave pointed out that in the recent, brief but deadly conflict between Pakistan and India, Pakistan’s Chinese-built J10-C jets performed impressively in firefights, shooting down several of India’s expensively-acquired MiG and Rafale planes. Iran, Egypt and Indonesia are now reportedly queueing up to place orders.
When asked in which currency would this trade between China and the Global South take place, Gave wasn’t convinced it would be the renminbi (CNYUSD) . He thinks the Chinese may well use the Hong Kong dollar (HKDUSD) for international trade to prevent a bubble forming in its own currency. Capital has been pouring into Hong Kong for two years now, and he forecasts “epic liquidity” in Hong Kong going forward.
If he was bearish on the dollar but bullish China would this mean an appreciation in the renminbi? Gave thinks that Beijing is playing a tactical game, preventing its currency from rallying so that when Xi and Trump meet this year, as intimated by Secretary of State, Marco Rubio, Xi may be able to give Trump a concession and an easy win by belatedly allowing his currency to appreciate.
Questions have been raised about the investability of China since the government crackdown on business leaders, particularly in the tech sector, began in 2020. Gave admits the government probably overreacted to the ban imposed by the U.S. on the sale of semiconductors to China which convinced the politburo it was “at war” with its trading rival.
Gave relates that Xi gathered all business leaders into a room, literally not figuratively, and instructed them that the era of unbridled commercial independence was over and they now had a responsibility to invest in infrastructure, tech independence, semiconductors and industrial capacity of strategic benefit to the Chinese Communist Party. Those who resisted, paid the price.
This process wasn’t without cost or casualties, and investors, demonstrably, took a dim view of proceedings, underweighting Chinese risk assets ever since. Now, though, Gave says it’s just as likely that corporate America suffers from interference in their economic (and cultural) affairs by the government.
The controversial topic of Taiwan has preoccupied investors and geopoliticians alike for a long time and how its history unspools will have a huge effect on investment and defense strategy. For Gave, the Taiwan issue is something of a red herring and he wryly observes that the further away from Taiwan one travels, the more worried one is. Gave is unequivocal: “China will not invade. They have no need.”
With the pro-independence party currently polling in the 20s, Gave believes China can eventually influence Taiwanese politics and elections sufficiently to assume control of the island, perhaps by offering a continuation of the status quo for fifty years or so and then maybe some kind of “one country, two systems” compromise a la Hong Kong. Whatever the resolution, Gave doesn’t foresee a Sino-American military showdown. China can take control without it.
So, if investability and Taiwanese independence are no deterrent to asset allocators, what about the notorious real estate sector, buried in seemingly irrecoverable debt? Gave remarks that China is seven years into the property downcycle, and this issue is no longer a hot-button issue. If it were, he contends, then banks would not have been performing well in the last two years. Their balance sheets are in repair.
Competition between the U.S. and China in the field of AI has been fierce since the introduction of DeepSeek back in January of this year, threatening to undermine U.S. dominance in the nascent technology. When quizzed about who might make the most money in AI, Gave laughed: “No one!” Gave asserts that “when China walks into a room, the profit walks out” and because barriers to entry in AI are difficult to establish, he’s not sure anyone will be truly profitable. “Don’t compete with the Chinese” was his advice.
He does, however, opine that the industry most likely to benefit short-term from AI is the finance sector because the technology can reduce costs, and lead to quicker and more efficient transactions. Recent outperformance of financials might bear out this theory.
No surprise then that when asked where he would place his bets going forward, Gave was crystal-clear: China, not America. He’s not alone in his views that China is a big contrarian wager right now. Gave studies his investible universe through five prisms: fundamentals, valuations, the regulatory regime, momentum and investor positioning. He concludes: “All of these factors weigh in favor of China at present.”
The iShares MSCI China ETF MCHI has gained 21% this year, outperforming the 6% rise for the S&P 500 SPX.
-Jules Rimmer
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
07-16-25 0243ET
Copyright (c) 2025 Dow Jones & Company, Inc.
