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| Picture from Reuters |
The past one month has been challenging for the Chinese government. Shortly after President Trump renew the trade war on China, he went ahead to implement an export ban on China's top telco company: Huawei. China's economic data for May, including fixed asset investment and industrial output, indicated continued weakness and suggested that the economy is weakening under the pressure of the US trade war. Meanwhile, an estimated 2 million people turn up for a protest against a proposed extradition bill had the US lawmakers suggest a review of the privilege economic zone enjoyed by Hong Kong. The protest also strengthened the bargaining power of President Trump when he meets President Xi in the G20 Summit in Osaka come June.
The Stock Market Holds its Breath
After the announcement of Huawei ban, tech stocks around the world came under pressure as tech companies have to re-examine their relationships with their supply chain in China. The focus also thrown a spotlight onto the strategic importance of the 5G network and smaller economies have to calibrate their foreign policies while they start to roll out the implementation of the 5G network.
The depressed stock market rallied strongly when central banks in US, Europe and China indicated that they will take measures to cushion the impact of the trade war. The US stock market has recovered a big portion of it losses but the Asia equities still remain under pressure due to the influence of the weakness in the China's economy and the trade war.
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| Chart from Yahoo Finance |
G20 Summit Hope for Breakthrough?
The upcoming G20 summit will be in focus as the meeting between President Trump and President Xi will set the tone for the coming months whether there will be any reconciliation on the issue of trade war. Should both sides continue their impasse, the stock market will be rocked again and the chance of a global recession happening in 2020 will probably come to pass. While analysts do not expect the trade war to be resolved by the G20 summit, market watcher are hoping that it can restart trade talks again. There is a lot of incentive for President Trump to resolve the trade war by the time US holds their election in Nov of 2020 and if Trump is using the stock market as a barometer of the of his presidency and is probably one of the biggest factor for his re-election bid, he will attempt to push the stock market in his favor when the 2020 presidential election comes around. A 2020 recession is something that President Trump hopes to avoid and that is something that investors can look forward to when it comes to the stock market performance.
Portfolio Strategy
The portfolio registered a fall of 2-3% as compared to the 5% drop in global equities due to our allocation in safe bond funds and Emerging Market equities which are able to withstand much of the shock that came with the fall in Chinese equities. With the stock market uncertain of the direction of how the trade war talks will take, it is prudent that we do not make major portfolio allocation decisions, other than minor tactical adjustment of the portfolio to diversify existing Asian allocations into more defensive countries and sectors. Trying to make rationale prediction on the outcome of the 2 most unpredictable and powerful men in the world is a futile effort and the best strategy for now is to adopt a hold and wait attitude and see how the power dynamics of the clash of the two most powerful countries play out.
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