 Hey guys, happy Saturday. Welcome to another video today We're going to be discussing the US China trade war and hopefully Demystifying a few things because it is I think very confusing and all the different elements of it so tensions have been Rising between the two world's largest economies and they spiked in recent weeks and Officials on both sides are suggesting now that a hard one trade deal that basically diffused an 18 month Trade war could be abandoned months after it was signed in January. So I know January feels like a long time ago We've all been in lockdown and felt the wrath of the coronavirus But this is now leading to the trade war Increasing in intensity yet again and investors were holding their breath all week Waiting for Donald Trump's press conference that happened on Friday night So thanks, Donald really wanted to spend my night waiting for your press conference and actually it was a disappointment I think disappointment if you were one expecting there to be fireworks a good thing for equity holders. So Trump basically came out and said our actions will be strong but reasonable he basically pulled back from the who and Was actually quite soft to be honest and I think investors obviously took that In their stride and he said he's not planning to scrap the phase one trade deal And yeah investors moved on But do expect and kind of be protected if you can From retaliation from China because I think that is definitely to come Is a political exercise at the end of day is no coincidence that Trump starts to strum up You know the China talk Because the stock markets are all-time highs and he bangs the drum When he looks good, right? He did you hear anything about? China and the tensions between the two when there's when we were at the March 23rd loads, of course Because he's got a few kind of Feathers in his cap that he likes to roll out to strum up his voters One being China one being the stock stock market So the stock markets are all-time highs and now he has the the wiggle room to take fire at China and In amongst the devastation that coronavirus has caused to the real economy, you know This is an easy target China's an easy target millions are unemployed and given the emotional nature of this virus I think and the kind of pain that it's caused. It's gonna Definitely stimulate a lot of bad feelings a lot of nationalist feelings. I think In not just the United States, but in Europe as well And I think this is you know a really big risk To global GDP and obviously then stock markets even though this stock market doesn't seem to care about the real economy At the moment there will be a point where it has to So the big risk is protectionist measures being stimulated again but as You know the United States start to unwind the lockdown measures and as we kind of progress to the November 2020 election date. He's gonna further alienate China and as the stock markets all-time highs, he's got more wiggle room To do that. We have to talk about the virus because since the pandemic originated in Wuhan There's been increasing accusations that China failed to control the virus at inception With some comments coming out of the the White House and Washington and Trump claiming that Chinese scientists Potentially create the virus and now of course, we're never gonna know that and I don't really have an opinion on that To be honest, we'll never know anyway But what Trump's done is use this and called it the Chinese virus, of course We know that a pandemic and a virus cannot have You know can't be assigned to a country But this is what is gonna he's gonna use to stimulate his core voters as well and J. P. Morgan have definitely written in their note recently the increased chance of Policization Policization, sorry of the coronavirus pandemic and blaming it on an ethnic group or a country It's just such a convenient excuse for basically failings at home, you know wrong policies All the people that are unemployed the income inequality the wealth inequality and You know, it's an easy excuse But the big risk is that it provides a pretext to push a geopolitical Or protectionist agenda and this is paired with the coronavirus as we kind of step into that kind of Chance of a second wave, but also the recovery really of the real economy as people do go back to work You know the consumer and lots of Economic data points were relatively strong heading into the virus if you're talking about unemployment The consumer Things like that. So it's not going to take too much time to recover The only thing stopping it, of course is the big thing that is the lockdowns But the rolling back of globalization, which is definitely a trend that I think we're gonna see and the politicization of this virus could lead to equities Rolling over and this is easy to kind of use because there's been more than Or at least a hundred thousand American deaths far more than what China have reported, of course It's a well-known fact that Chinese data can be somewhat elusive at times So that number is likely to be higher. But of course, this stimulates a lot of kind of bad feelings So Trump is terminating the relationship with the who and he's basically said that the cover-up of the virus has cost lives in the US and elsewhere Hong Kong is another really sensitive subject. So on Thursday Beijing's Politburo Standing Committee officially woven national security law in the Hong Kong Constitution taking advantage of basically this loophole The required Hong Kong to always have a national security law on its books Many have decreed the move as crossing of the Rubicon that Beijing no longer cares about It's placating its Western allies as it cracks down on the freedoms of the territories that it basically claims And Trump basically come out yesterday and said that they're gonna act to revoke Hong Kong's preferential treatment and order And Trump orders the beginning of the process of eliminating the Hong Kong Exemptions so the Hong Kong issue is putting additional strain on this kind of US-China relationship relationship Risking a renewed flare-up again further downward pressure on the reninbi and an acceleration of the US-China Decoupling and US lawmakers are pushing the president to hit China with sanctions or other measures For its increasing grip. So China's increasing grip on Hong Kong and human rights abuses toward the minority Muslims and Pompeo's come out of the Washington out of Washington And said on Wednesday that Hong Kong's effectively lost its autonomy and no longer warrants the special treatment that it gets Under US law and this declaration essentially opens up the door For Trump to impose penalties ranging from modest sanctions to China's actions against this kind of territory Revoking Hong Kong's special trading status. So of course China is gonna vow to hit back at the US While moving ahead with the national security legislation over Hong Kong But this is more fuel to the fire and we're seeing investors fleeing Hong Kong the Hong Kong dollar is pegged to the US dollar Just to put it out there More You know more investors are actually fleeing Hong Kong selling their once really valuable Real estate And it's the Hong Kong dollar is trading towards a stronger end of its band Against the US dollar as the dollar weakened against the euro And several over its major rival. So Hong Kong residents and this is coming out of Bloomberg have been exchanging more of Hong Kong dollars holdings Their Hong Kong dollar holdings into foreign currencies at banks and money exchange counters Of course the trade war Basically Trump has said that You know, they're gonna keep the phase one trade deal intact at least for now But of course espouse really bad Kind of connotations for US companies with significant exposure to China. So for example simple screen 40% of Revenue generated in China companies like Dell Texas Instruments monolithic power systems They're gonna reel at these increased tensions as well any Chinese Companies listed in the United States Definitely, you know, they're gonna be toast in my opinion. So companies like Alibaba Recently the US Senate has passed a bill to delist these Chinese companies Which obviously has implications for companies like Alibaba being barred from being listed in the United States And this new bill essentially Requires companies to certify that they're not under the control of a foreign government And last year obviously in 2019 when trade war tensions were kind of at their peak Washington Washington banned US firms from doing business with Huawei short seller Carson Block muddy waters research He believes that the majority of Chinese companies listed in the United States Are committing some level of fraud with around 30 to 50 percent of revenues being fictitious He does believe that there are some good Chinese companies, of course But there are some kind of short opportunities there as they're kind of auditing standards that take place in China Are somewhat more relaxed than in the United States. So could low again Said that Reinforced the point that the phase one trade deal is gonna continue for the moment And you know, there's progress there, but I think this will be the case You know kind of up until November as bear in mind where the stock market is But as we kind of you know go past the election then he'll come down With the hammer in my my opinion again the currency war This was August 2019 when it broke that kind of symbolic seven level The kind of Yuan is not freely traded of course and the government limits its Movement against the United States dollar. So another element of this kind of US China kind of conflict is that China does actively manipulate its currency to make its exports more attractive so this was When the kind of Yuan fell below seven in August, it's now about seven point two, but this was the lowest since 2008 and this is gonna be another Kind of thing that that everyone's gonna focus on it keeps It's Yuan low to keep export prices low compared to the United States Dollar but also invest heavily in the US Treasuries as well So, okay China has accumulated Lots of you, you know huge amount of US Treasuries over the last few decades as of around December 2019 they own one trillion or about five percent of the 23 trillion of course, that's a lot more US national debt far more than any other Country, but some analysts and investors are fearing Of course that they could China could dump these Treasuries and retaliation and this isn't a new thing, but how this essentially works is it essentially weaponizes them The Treasury holdings and this would essentially putting more supply into the market would send interest rates higher hurting economic growth But of course remember we've got this corona viruses Decimated the real economy. So this would be another really bad thing that of course They would want to avoid so dumping this 1.1 trillion into the market, but on the flip side Guggenheim's projections as a result of the corona virus, of course The government have been issuing lots of treasuries to finance, you know, the recovery So there's going to be five trillion in debt issuances at this calendar year, which could be conservative So another one trillion, you know, you think what's another trillion? You've got the Fed to backstop this now And there would be more pressure from Trump on during power if this was the case I do think this is unlikely though Of course, we need to look at consumers in the United States They are likely to contribute a lot to the recovery of the United States, but we had some data Out and they and US consumers spent spending plunged in April by the most on record and this was as a result of Of the the stimulus payments being received but actually saved so incomes posted a 10.5 percent increase But outlays so household expenditure fell 13.6 percent So shows that the the consumers of the United States aren't dumb They're doing the actual sensible thing even though this is not what Of course what the the Fed want and the government want consumers to be doing is saving these stimulus checks For example, and if you haven't if you don't if you're not aware of a stimulus check check the previous video that I recorded And there's been some research that essentially the tariffs That you know have been implemented the US are actually paying And US companies and consumers are paying almost a full cost of this and this is coming out of the National Bureau of Economic Research And this came out out in January So the United States consumers and companies are actually suffering from these tariffs Even though Trump and his senior advisers have basically insisted that China was paying the full cost of this so spending for Falling off a cliff and there was not enough of an uptick or a recovery that we saw and savings is through the roof So this is something to be aware of JPMorgan have advised now That they're gonna start trimming back equities and this is coming out of their strategist Marco Kalanovic who actually caught the somewhat of the March bottom and he's basically said that you should start Trimming or they are starting to trim their equity holdings and not because of the coronavirus But actually has tensions heat up as a result of US China trade war So they're dialing down their positive outlook of on equities and they'd like to see these more of a normalization of these political risks so This is another a risk to equities at the moment and of course I did a video a few months ago where equities are overvalued. They've been overvalued for a long time But expensive things tend to get more expensive and cheap things tend to stay cheap or get cheaper So the forward P multiple for the S&P 500 Is now above 23 So this is the highest since the early 2000s So more stress from a valuation valuation perspective mid and small caps All-time high valuations and so is leverage So there's been a huge amount of assumptions in this kind of equity market rally And if you've caught the kind of jet fuel injected rally from the Federal Reserve great But I think you always need to keep him where keep aware of the valuations There's more stress there and there's a lot of assumptions at a price almost But for perfection and what's been leading this rally is these growth stocks so Google Apple Facebook for example and cyclicals really haven't participated although they did for a bit The last five days or so and they remain very cheap So it's always worth in amongst all of this kind of China US tensions keeping in mind valuations and what the smart money is doing in in the context of these kind of US China trade war so Another increase in the net short position in the E-mini S&P futures contracts And this is coming out Bank of America confirmed that the trend of smart money is selling stocks with the bank's private net high net worth individuals Not only selling stock for seven consecutive weeks, but last week it recorded the largest week of equity selling since June 19th So what are private clients doing with this newly released cash buying gold? apparently and other products including health care To basically hedge the coronavirus risk Tips as an inflation hedge and investment credit, which again is backstopped by the Fed and there's an increasing risk of retail Investors basically lacking your analysis, but they're bidding up these battered stocks So I'm sure you've seen the Robin Hood top holdings are really just punters So American Airlines Carnival lots of cruise line operators some biotech stocks Like Moderna, which obviously is down around 40 percent from that pop Where they essentially Cured the had a vaccine and cured the coronavirus little Did everyone know that it was only eight people and it wasn't very effective? Yet the owners of Moderna obviously raised a lot of equity there Who are the losers from this kind of coronavirus? Infueled us china trade war increase in tensions so There's no one benefits from a trade war But Wall Street giants such as Goldman Sachs jp Morgan have tens of billions of dollars at stake in China as political tensions rise Of its 45 trillion financial markets, so they have a combined 70.8 billion To China with JP Morgan alone plowing 19.2 billion in lending trading and investing attempts an increase But companies obviously with more exposure to China are more affected So del as I mentioned before despite All of this they are the worst kind of impacted who are the winners so Economists estimate that the trade war would shave more than 0.5 percent off-growth But some countries have benefited in the fight Which redirected around one point one hundred sixty five billion in trade. So analysts at Nomura identified Vietnam as a country that Gained the most un identified Taiwan Mexico and Vietnam As we saw us orders ramp up last year. So there could be some good opportunities there The Fed also found that increased American imports boosted American Sorry Mexican economic growth by around 0.2 percent Malaysia was another big winner from round one taking around 1.8 percent market share of the tariffs And it's shrinking the kind of the china's share of us import imports And again, there's lots of these peripheral asian companies with cheap Supply chains like Vietnam like India That are going to take a lot of share So there are winners there are losers, but in general no one really benefits from a trade war But this is just going to be a kind of an ammunition tool That is used by trump heading into the election. So a lot covered there. I hope you enjoyed the video And have a good weekend