Legendary investor Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund, warned at the Dubai World Government Summit that the world is on the "brink" of a capital war, and investors should pay attention to geopolitical tensions and potential risks in capital markets, while also considering the importance of gold as a safe-haven asset.
The risk of a global capital war is rising.
Dalio points out that capital warfare refers to the use of funds as a weapon by nations or organizations, such as trade embargoes, restrictions on capital access to markets, or pressure through debt holdings. He states that the world is currently "very close" to the tipping point of capital warfare because of mutual fear among the parties, and if things get out of control, it could easily escalate into a full-blown capital war.
He specifically mentioned the recent US attempt to bring Greenland under its control, which has triggered tensions between the US and Europe. He also warned that European investors holding dollar assets are worried about potential sanctions, while the US may be concerned about losing access to European funds and buyers, creating a situation of "mutual fear."
Historical experience and preparation for capital controls
Dalio, reflecting on history, points out that capital wars often occur during major international conflicts, such as the US sanctions against Japan before World War II to address tense relations between the two countries. He suggests that a similar situation could arise between the US and China today, and even capital dependence between the US and Europe could become a potential risk.
He pointed out that historically, capital wars have often been accompanied by foreign exchange controls and capital controls, and institutions including sovereign wealth funds and central banks have begun to make relevant preparations to deal with possible capital control measures.
Gold: The top choice for safe-haven assets
In response to global geopolitical risks and capital market volatility, Dalio recommends investors include gold in their asset allocation. He states that gold offers excellent diversification for portfolios, outperforming during market downturns and remaining relatively stable during boom times. Dalio bluntly states:
"Gold has risen about 65% since last year and fallen about 16% from its peak. Investors should not only focus on short-term fluctuations, but should also consider how much gold should be allocated in their portfolios to diversify risk."
He emphasized that the most important thing is to build a fully diversified portfolio to cope with global uncertainties and the risks of potential capital wars.
