Through the Mist of Fear
China and US Trade War
With another 25% tariff on US$50 billion of Chinese imports and the further 10% tariffs on US$200 billion of imported goods from China, Trump's US seems to be playing a poker game that China is destined to lose. The Chinese could only go all in by applying tariff on the entirety of their US$130 billion worth of import from the US. The Chinese just do not have enough chips to play in this tariff war.
Since the tariff, the exchange rate had move and the Chinese Yuan had depreciated against the US Dollar neutralizing most of the tariff imposed by the US. So the depreciating Chinese Yuan had done a magical job of offsetting the price rise for US buyers. As the threat of tariffs continue to escalate further and since the ability to quickly move production out of China is impossible for most factories who still operate in China (most lower value added manufacturing had already moved out of China long ago), there is chance of unintended secondary effect hurting the US and Chinese economy. The US wont be able to find substitute sources for their imports and then tariffs would either raise prices or reduce profit in the supply chain or most likely both.
How is the economy?
China policy maker had taken steps such as extending time frame to reform the shadow banking activities, granting approval to roll over existing loans and making funding for infrastructure available. The US continue to grow strongly due to the tax cut. Employment continue to be low and business confidence continue to be high. Federal Reserve continue to raise rates and more could be expected. While headline looks bleak, the economy looks pretty healthy as a whole.
A little contrarian view
The potential China slowdown, the trade war and the rising rates in the US caused money to flow back into the US causing a rout in most emerging markets. This has caused a significant out performance in the US market versus the rest of the world. While everyone flocks our of China, we are starting to find see some value in getting into the China market. While the Chinese technology sector (Baidu, Alibaba, Tencent) remain highly interesting, we believe that the regular financial firms such as Ping An represent substantial value at this point. Instead of choosing, I shall be regularly investing into the ETF which tracks the Chinese economy broadly.As China continues to open its market, capital flow will reverse and we believe that there is still decades of growth left in China.