Finally the long awaited moment of trade war in greater measure between the two largest economies in the world has been reviewed on September 19th 2018. Both US and China has announced their respective tariff measures against each other. Surprisingly the extent of the tariff is lesser than what the world has expected. US has imposed 10% of 200 Billion Chinese import while China imposed 10% of 60 Billion from US import.
Prior to this announcement, some sober analysts have calculated that even if 25% of the 200 Billion import from China is implemented, together with China retaliation of “equal strength”, the economically impact to both the US and China is very limited as it can verified with statistical factual laid out. How much more, the implementation now is much lower then what Trump previously threatened to impose. Furthermore, China retaliated measure is also not what it claimed as equal strength. It is lesser strength than what it has promised. The volume is much smaller for obvious reason.
Trump has promised to further imposes 267 billion import if China retaliates its import tariff this round. But now, even if Trump announces his second round of tariff, he would have to wait after public hearing or further listing and studies for at least another 2 more months.
Excellent Opportunity Created
The good news for us all is this, China market reaction has been overdone in the past 3 months or so. Thanks to Trump and China rhetoric fight. China markets, represented by Shanghai index and Hang Seng Index respectively have gone into technical bearish territory by dropping more than 20% from the peak.
However, though we have been hearing that economic data recently released from China does not match with the fear of market index drops. Economical fundamentals of China is as solid as never before. The slowing down of Industrial Production growth rate is also not as what analysts expected even the previous tariff of 50 Billion, including steel and aluminum are already on the road.
With this back drop information, we will witness that investors for China market will be awaken after September 19th. In fact, they have already rushed into China market causing it to spike up consecutively for 3 days after the announcement of tariff from both countries.
China Market Opportunity
In my personal humble view, China markets, leading emerging markets will resume bullish run up until at least near their previous historical height, if not creating new height. I believe this could be the best opportunity of investment created for 2018 in this short golden window.
However, market run up too fast last few trading sessions, made investors look like too late for the party (see Chart A). We hope however there be a short pull back for late comers to enter the ride next week. This short pull back could be created by Trump’s announcement for his team to further study of the 267 Billion next round of tariff or preparing for public hearing and the like.
For the meantime, the best fund we can consider entering are those previously good performing funds but have dropped the worst due to trade war threat. My top recommendation would be RHB Big Cap China Enterprise Fund.
If whoever is more conservative, would not dare to expose too much risk in single market, can consider investing into the greater China market chain as in Hong Kong, China and Taiwan. Eastspring Investment Dinasti Equity is highly recommended in this case because of its rebound strength as indicated in the past performance.
Emerging Market Opportunity
While we have heard of the worst performances of emerging markets, with credit crisis hit like Argentina, Turkey, South Africa and others, negative analysts have been predicting the coming of the next emerging market crisis. I believe all these individual cases of crisis have to be one way or another affected by trade war threat. Since this threat will be gone cooling for a while, this emerging market index will also be reflected and recover slowly. The top recommendation of emerging market will be Global Emerging Market Fund.
While you may be considering investing into these fast rebounding funds, the duration may not be comfortably long. It would most probably a short span of 2 months or even lesser depending on how the next round of trade war threat develops further. You have to exit these investment to lock up profit when the appropriate time arrives or if it deems necessary. So investing into these funds will still need to keep watch and be alert for market development.
Trade War Resilience Funds
For those who do not think trade war threat was really overdone, and will still remain a great risk going forward, you may consider trade war resilience funds such as RHB US Focus Equity Fund or CIMB Principal Global Titan Fund. Not only these funds were not affected by trade war rhetoric, they have actually climbed higher.
In certain extent, Eastspring Investments Small Cap Fund may be considered trade war resilience fund. Because Malaysia has been seen as the best alternative for China corporate production relocation or export detour option to US market in order to avoid US tariff. That’s the reason why KLSE was not very much affected by recent trade war rhetoric.
This will be particular true when Trump has given 3 more months cushion period for US businesses to prepare before 25% tariff going to be full blown by January 2019. As US corporate businesses prepare themselves, China businesses who still want to do business with the US, they will also be “preparing” themselves too!
Even though the return of these trade war resilience funds may not be very high comparatively in shorter term, but they can be invested in a longer time horizon.
Last Chance before Next Global Recession
In a condition where there is no new unexpected development in the global scenario, this trade war threat could have most possibly come to an end from now on. As in the past, no matter what economic crisis threat like in Greek economic crisis threat, North Korea war threat, SACS crisis etc… there got to come to an end somehow. If it emerges again like Greek economic debt crisis recently, global market would simply shrug it off. I believe this will be true to this Trump trade war. Global market will be more immune to it if it resurfaces again. It is not going to be a great threat anymore. Most investors have come to their senses that the threat in the past was merely kid play, like the shepherd boy with his wolf crying jokes, repeated a few more times, no one will believe his cry anymore in the future.
Do you still still remember, the speaker’s prediction for DOW hitting 30,000 mark by next year? This could possibly come true as I see it now. Then, this period of time will most probably the last chance to invest before the next global recession arrives.
Thank you for reading and happy investing but invest safely!
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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions. This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to make up individual investment decision.