Francisco Jose Ortiz @FranciscoOrtiz13: "US vs China: Two systems,..."

Georgia

US vs China: Two systems, two models, and a structural gap investors may be underestimating Last month was a strong one for the portfolio. We recovered what we had lost in the previous two months, although not as fast as more US-concentrated portfolios. That is the natural consequence of being globally diversified and having meaningful exposure to emerging markets. That context connects to a broader question: how different are the US and Chinese economic models at the company level? And which one is structurally more competitive? Most investors still frame the US as the free-market benchmark and China as state-controlled. At a macro level, that is directionally correct. At the micro level, it becomes less obvious. The US has created some of the most dominant companies in history. But the system has also become increasingly concentrated. Across key industries: Smartphones: effectively one global player $AAPL (Apple) Social platforms: largely concentrated in $META (Meta Platforms Inc) Search: dominated by $GOOG (Alphabet) Cloud and infrastructure: led by $MSFT (Microsoft) and $AMZN (Amazon.com Inc) At the same time, the system has become more defensive: - Tariffs on imports - Restrictions on foreign competitors - Direct bans on companies like Huawei - Increasing pressure on Chinese EVs and technology This combination reinforces dominance. It produces: - high margins - strong moats - global scale But also reduces internal competition. At the company level, China operates very differently. In many industries, competition is intense: Smartphones: Huawei, $1810.HK (Xiaomi Corp) , Oppo, Vivo, Honor EVs: $01211.HK (BYD Co Ltd) $9866.HK (NIO Inc Class A) $LI (Li Auto Inc-ADR) , $9868.HK (XPeng Inc) $00175.HK (Geely Automobile Holdings Ltd) E-commerce: $BABA (Alibaba-ADR) $9618.HK (JD.com Inc) $PDD (PDD Holdings Inc - ADR) Content & social: $0700.HK (Tencent) $1024.HK (Kuaishou Technology) $9626.HK (Bilibili IncClass Z) Financials: $1398.HK (Industrial And Commercial Bank of China) and other large institutions Instead of one dominant player, you see multiple large companies competing aggressively. This leads to: - faster product cycles - constant innovation pressure - lower margins in some cases - strong consumer alignment At the micro level, this often looks closer to pure competitive capitalism than the simplified narrative suggests. This dynamic is visible outside China. In Mexico, one of the closest economic partners of the US, Chinese brands are increasingly present: Huawei, Xiaomi, and other global Chinese consumer brands. And increasingly, Chinese EVs, especially BYD, are gaining traction. This matters. Because it highlights a growing gap between what investors see and what consumers choose. From an investor perspective, US companies still dominate: higher margins, stronger moats. more predictable cash flows. From a consumer perspective, the best product is not always American. In many categories, Chinese companies compete aggressively on: price, speed, and product iteration. This raises a key question: over time, what wins: margin dominance or competitive intensity? This is not about choosing one system over the other. It is about avoiding concentration on a single outcome. If your portfolio is only exposed to one regulatory system, one currency, one competitive structure, you are making a highly concentrated bet. This is why I maintain structural exposure to China and emerging markets. Approximately 10–15% direct China exposure, higher when including emerging markets broadly. On eToro, you can invest directly in Hong Kong-listed companies that are not marginal players. They operate in some of the most competitive environments globally. After seeing the Chinese economic transformation with my own eyes, I became more bullish about China. That view was not formed from screens, but from direct observation of infrastructure scale, execution speed, and market dynamics. More recently, after spending time again in Latin America, I have been reassessing Brazil. The conclusion is simple: Brazil adds a different set of exposures: resources, domestic growth, and optionality at the policy level. And we saw that recently. During the escalation in the Middle East, while most assets declined, $PBR.A (Petroleo Brasileiro ADR) moved in the opposite direction. That is not an isolated event. It is a function of diversification across systems and cycles. There is a third system that is often overlooked: Europe. More protectionist in many ways than the US, but with fewer globally dominant companies and slower innovation cycles in key sectors. At the same time, there are early signs of coordination: industrial policy strategic alliances, attempts to regain competitiveness. The open question is: Can Europe build a third model, or will it remain structurally behind both the US and China? This is not about ideology. It is about structure. Different systems create different types of companies. Different types of companies create different return profiles. Markets will rotate. Narratives will change. The objective is not to predict every shift. The objective is to build a portfolio that can operate across multiple geographies, multiple economic models, and multiple sources of growth. That is how long-term resilience is built.

Not investment advice. The author may have financial interests in the mentioned instruments.

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