(Bloomberg) — The size of the Federal Reserve’s rate cut this week will not be a major change for global investors, although risks from the slowdown in China still weigh on their minds, participants in a regional forum said.
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Ray Dalio, founder of Bridgewater Associates, said what the Fed does this week will make “no difference” in the longer term because policymakers ultimately need to keep real interest rates low to continue servicing mounting debt.
“The Fed needs to keep interest rates high enough to convince creditors that they are going to get a real return, without raising them so high that borrowers get into trouble,” Dalio told Bloomberg Television’s Haslinda Amin on Wednesday on the sidelines of the Milken Institute Asia Summit 2024 in Singapore.
The Fed is widely expected to cut interest rates later Wednesday after holding borrowing costs at two-decade highs for more than a year. Investors and analysts are divided over whether to cut rates by a quarter of a percentage point or a half point as officials try to bring the economy to a soft landing.
“It’s more important to stay focused on the longer term, and particularly for equity investors to think about a five- or 10-year horizon,” Capital Group Companies Inc. Vice Chairman Jody Jonsson said in a separate interview during the event. Regardless of the size of the cut, Jonsson said it won’t change “what I do in my own portfolio.”
According to Jonathan Goldstein, CEO of Cain International, the return-to-office measures are as important to the fortunes of the real estate sector as any Fed rate cuts.
However, investors are concerned about a slowdown in China, putting pressure on Chinese authorities to respond with fiscal and monetary stimulus to help the world’s second-largest economy meet its growth target of around 5%.
China is suffering from “worse than expected scarring effects” from the Covid-19 outbreak, said Fang Fenglei, founder and chairman of Hopu Investment Management, citing falling stock markets and foreign direct investment.
Still, while investors are hoping for stronger stimulus policies to boost growth, “the Chinese leadership does not care much about short-term interests” due to its long-term governance, “people first” mentality and Chinese political economy, Fang said.
Fang said Chinese policymakers are wary of a repeat of what happened before, when the 4 trillion yuan ($564 billion) stimulus measures implemented after the financial crisis pushed up property prices and led to overcapacity.
China’s industrial output suffered its longest slowdown since 2021 in August, with consumption and investment weakening more than expected, according to data released on Saturday. Ahead of the data, the People’s Bank of China said it would prioritize fighting deflation and signaled that more monetary easing would come in the future.
Dalio said a small portion of his family office’s portfolio is still invested in China, but he pointed out that there are “real problems” in the country.
“A small percentage of our portfolio is in China and we will remain in China during this process,” he said, adding that the country remains a “very attractively priced place” to invest.
The problems with the Chinese economy are “a major concern” for both Chinese and Western companies and “cannot be solved quickly with government intervention and will take much longer to resolve,” Capital Group’s Jonsson added.
Also read: Xi’s big economic reorientation eases China’s slowdown
—With assistance from Russell Ward, Lulu Yilun Chen, and Anand Menon.
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