Trump reignite trade war. China bans US agricultural exports

Source: Reuters

The trade war between US and China re-ignites again as Trump decided that the progress from recent talks are not satisfactory for him and he threatens slapping 10% tariffs on rest of 300 billion goods being imported to US. In retaliation, China ban all agricultural exports from US and that includes 9.1 billions worth of pork, soybeans and diary products. In additional, China let yuan falls to 7 to 1 USD as a way to soften the blow against the tariffs by allowing their exports to be more competitive with a weaker yuan.

In a tit-a-tat move, US labels China as currency manipulator. The implication of assigning China as a currency manipulator may potentially allow the US government from excluding companies from these countries from providing any services or goods to the US government.

The sudden resurgence of the trade war caught the market by surprise with the global stock markets falling between 3-7%. Many analysts now believe that the hope of any resolution of the trade war will be dead until 2020, with China probably be waiting until the end of the next US presidential election in Nov 2020, before they resume negotiation. Meanwhile, the trade war will become a drag on global trade and probably have a negative impact of the two largest economies in the world.

Portfolio Strategy

The Portfolio did well in July returning 1.95% thanks to the hope that the resumption of the trade war talks will cool the temperature and lead to some resolution, which we know now, is a hope that did not come to pass. The lowering of the US interest rates also gave a boost to the stock markets, while the unemployment rate in US remains low.

After the sharp escalation of the trade war, the portfolio has fallen 1.38% so far as compared to major US and Asian Indices losing 3-7% as a result of the recent re-balancing exercise we did in July, which helped us locked in some of the 2019 profits and the more defensive nature of the new portfolio was able to withstand the market shock. The investment in long term top graded bonds in Legg Mason Global Bond did very well in returning 1.76% as investors fled risky equities and parked in bonds.

As the situation is fluid at this moment of time with the fate of the world economies resting on the shoulders of President Trump and President Xi, it makes predicting any stock market trend in the short term unreliable and a balanced approach to the now slowing global markets is the best one to adopt right now.