Latest Blogs

11 June 2020 CIO UPDATE – THE ART OF TRADE WAR

WHAT YOU NEED TO KNOW • Rising US-China tensions are a downside risk to the macro and market outlook, but political and economic considerations point to a “cold” trade war prior to the US election • The cycle is improving from here. We expect China to pick up momentum, along with the rest of the emerging market (EM) complex, excluding Latin America. The US should follow, and then Europe • Rising trade tensions are a key risk to this investment call but, to derail it, they will have to escalate meaningfully NOT COOLING DOWN BUT NOT HEATING UP EITHER Tensions between the US and China have risen lately, with several key issues beyond trade emerging as sticking points. The fact that China has, so far, been unable to increase imports from the US at the required pace to meet the phase 1 trade deal terms is not helping – though this is mostly due to the sharp shortfall in economic activity earlier this year. However, the US also appears dissatisfied with how China dealt with the initial stages of the COVID-19 virus outbreak. Furthermore, following a recent assessment by its State Department, the US has outlined potential measures that would affect Hong Kong’s special treatment, ranging from the export control framework, to the extradition treaty, and an eventual convergence to mainland China tariff levels. The US also mentioned a range of nontariff measures that could potentially be applied to China, such as visa restrictions and sanctions on individuals, and that a working group would study the differing practices of Chinese companies listed on US financial markets. While this may seem a repeat of the 2018 trade war, what is different this time around is both the economic environment (much weaker, but starting to improve) and the political situation (we are in a US election year). The interplay between these two drivers suggests that a de-escalation will not be easy to engineer as the November vote approaches. However, it also suggests that neither the US nor the Chinese economy can withstand further shocks, such as a meaningful escalation, as they are just moving off their lows and entering a phase of repair. For the US, voters believe that economic recovery should be one of the top priorities, according to the polls. This is why, perhaps, no official statement has been made with respect to the US-China trade deal. Neither have we seen any mention of US tariffs on mainland Chinese exports, nor talks of sanctions on Hong Kong’s financial sector.

Source: Federal Reserve

W brownshipley.com

Brown Shipley is a trading name of Brown Shipley & Co Limited, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales No. 398426. Registered Office: 2 Moorgate, London, EC2R 6AG. Brown Shipley’s parent company is Quintet Private Bank (Europe) S.A which, from Luxembourg, heads a major European network of private bankers. Information correct as at 11 June 2020. [IU 11.6.2020]

11 June 2020 CIO UPDATE – THE ART OF TRADE WAR

For those clients who have access to My Brown Shipley you can check your portfolio valuation online. If you have any questions, please contact your usual Brown Shipley adviser. Authors Bill Street Group Chief Investment Officer Daniele Antonucci Carolina Moura-Alves James Purcell

Non-Independent Research The information contained in this article is defined as non-independent research because it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, including any prohibition on dealing ahead of the dissemination of this information.  How to Use this Information This article contains general information only and is not intended to constitute financial or other professional advice or a recommendation that any recipient of this information should make any particular investment decision. Always consult a suitably qualified financial advisor on any specific financial matter or problem that you have. Except insofar as liability under any statute cannot be excluded, neither Brown Shipley nor any employee or associate of them accepts any liability (whether arising in contract, tort, negligence or otherwise) for any error or omission in this article or for any resulting loss or damage whether direct, indirect, consequential or otherwise suffered by the recipient of this article.  Investment Risk Investing in stocks either directly or indirectly carries investment risk.  The value of equity based investments may go down as well as up over time due to factors such as, market volatility, interest rates, and general economic conditions.