Although it’s not front and center in today’s market rundown, it has been on the marquee for the majority of the market days over the past month or two.
Simply put, the US/China trade conflict overshadows everything – all of the activity on general markets, and much of the future activity that we haven’t seen yet.
In an interview today at CNBC, Charlie Awdry, investment manager for Chinese equities at Janus Henderson, talks about the long-term effects of a trade problem seemingly ignited by U.S. presidential tweets on a Sunday night.
“Although this friction point started on trade, it’s evolved into a whole number of other areas,” Awdry said, calling the US/China trade war rhetoric “entrenched” and warning investors that the whole thing will get more intense before it’s over.
“Business investment will be under pressure,” he said, citing what he called “second and third order impacts” of both rhetoric and new tariff activity.
Another casualty of ongoing trade disruption, Awdry said, may be the traditionally fixed ratio between Chinese and American currencies with the Chinese Yuan 7 to 1 against the dollar.
“It’s such an obvious level that anyone globally can see it,” he said, hypothesizing that if that long-standing “line in the sand” is broken, the ratio could fall much more dramatically.
Awdry further responded to questions about whether cheap Chinese equities could lure European and American investors to their doom, surmising that the currency changes could spark a new calculus on investment.
“If the currency is starting to weaken, that’s a headwind,” Awdry said.
Awdry is not alone in promoting logical long-term predictions on US/trade conflict with China.
At the same time, significant parts of the U.S. federal administration are pounding the drum for new tariff activity and other belligerence, claiming that America will somehow bend the much more populous superpower to its will.
Investors beware – in a game where brute strength meets brain power, the intelligence, the data-driven side, will always win, particularly when you’re talking about Wall Street. Our financial industry is stocked with some of the best and brightest minds that our educational system has produced – often called “quants” for their amazing knowledge of numbers.
On the other hand, those suggesting that Chinese trade wars will be a cakewalk have demonstrated highly illogical and erratic activity in the past, and don’t seem to be basing their predictions in cold, hard facts.
The headline for investors is that additional chaos is coming out of these international destabilizations. How you factor that into your portfolio is up to you, but there are many ways to lower exposure to downturns in the general markets.
Many investors are heading for the exits – either to safety, or to more sophisticated plays that can work out even if the S&P index ends up nosediving and more Americans find themselves out of work.