Chen Minlan: Competition in large powers does not necessarily mean that bear markets are coming. Investors should pay close attention to China's capital flow, foreign exchange reserves and high -frequency growth indicators to judge signs of economic pressure.

U.S. President Trump claimed that his friction with China was to obtain more fair trade conditions and stated that the unfavorable tariff rates, state support and intellectual property theft have accelerated the hollow of the US industry in the past few decades.However, is the real intention of the United States not only in trade, but to the development of China's scientific and technological development and curb its rise and become a global superpower?

This turbulent tide is actively negotiating with Mexico, but it can be seen that it can be seen in China's tough stance.The National Security Strategy Report refers to China and Russia as a revisionist forces, and is planning to challenge the power, influence and interests of the United States.

The regional stock market performance is sluggish, and Asian investors seem to believe that the trade conflict between the United States and China will not reach an agreement before the mid -November election.The bilateral relations between China and the United States are still confusing. Even if there may be a brief litter, the situation of trade tensions will continue to be high.

With the increasingly strong support of the United States Democratic Republican Party, we should pay close attention to the possibility of Trump's development in curbing China's development, which will have a profound impact on policies and financial markets in the next few years.

China's policy adjustment

For China, the United States tightening the time for China is not very good.After years of rapid credit growth, China has shot to work hard to curb debts in the entire economic field and promote deleveraging to reduce systemic risks.China has strengthened its supervision of the financial system, tightening shadow banks, and banks are also selling more non -performing loans.

These measures have achieved results.Since the beginning of 2016, China's debt to GDP has begun to stabilize.However, the current trade position in the United States may pose a threat to this process.

As the economy is required to stimulate the impact of US tariffs, continuing deleveraging will increase the risk of economic slowdown.China's ability to promote its overseas strategy, such as the Belt and Road Initiative, depends on whether it can maintain stable domestic growth.

Therefore, China has chosen to delay the delay and through short -term policy adjustments to ensure that the economy slows down.The tightening pace of financial supervision has slowed down, and the management and control of local governments' financing and public and private partnerships has relaxed. The Central Bank of China has also injected additional liquidity into the banking system.

China may also get rid of its dependence on the United States by improving the legal framework, deepening education reform and improving research and development capabilities. These goals are also consistent with China's vision of promoting innovation -driven growth.

Early signs have shown that China will openly open trade and investment channels between non -American companies and markets such as the European Union, Japan, and South Korea to meet their demand for high -tech products and relax the access conditions of these countries in the Chinese consumer market.Essence

At the same time, this also helps China to strengthen economic exchanges and diplomatic relations with other Asian countries, and further promote magnificent plans such as regional comprehensive economic partnership agreement led by China and the Belt and Road Initiative.

Will trade tariffs suspend interest rate hikes?

This year's MSCI global index rising is mainly supported by the US stock market, and emerging markets and euro areas are facing internal turbulence. The Asian stock market has been dragging on the steps of China's economic slowdown and trade tensions.In the second quarter of 2018, the annualized growth rate of the US economy was about 4.2%, which was the fastest since the third quarter of 2014. This provided support for the Fed's continued gradual interest rate hikes, although the US -China trade friction continued to ferment.

However, with the continuous upgrading of the White House's trade position in China, a risk is that the Federal Reserve has educated interest rate hikes in December and slowed down when tariffs began to impact.So far, the amount of taxation is not large compared to the scale of GDP.However, the higher tariffs that may be implemented in the next few months may offset good economic momentum to a certain extent.Due to the pervasiveness of uncertainty, the company seems to have suspended investment decisions.

The possibility of more than double the tariffs on the additional 200 billion US dollars of Chinese products increased, which may lead to countermeasures for Chinese sacrifice.For the Federal Reserve's decision -making, it is important that tariffs may make inflation higher than goals and slow down economic growth.This uncertainty (especially the latter) may lead to the Federal Reserve's efforts before March 2019, and the impact of tariffs on the economic recovery will be further clear.

Impact on Financial Assets

Although the risks and uncertainty faced in the market have risen, competition in large powers does not necessarily mean bear markets.During the Cold War and 1980s, the US -Japan trade conflict was quite strong in the US stock market.

In addition, the profit growth of the United States and China in the first half of 2018 was 25%and 24%, respectively.Therefore, in view of the good economic fundamentals and strong profits, we continue to increase global stocks slightly and focus on high -quality assets.

However, investors should pay close attention to China's capital flow, foreign exchange reserves and high -frequency growth indicators to judge signs of economic pressure.From 2015 to 2016, the global market decline was derived from these factors.

In view of the recent policy adjustment and stable foreign exchange reserves, the situation from 2015 to 2016 is unlikely to reproduce, but due to high uncertainty, the situation has changed sharply.In view of this risk, the People's Bank of China is likely to stabilize the RMB against the US dollar to around 7.0.

If the coverage of US tariffs on China does not exceed $ 250 billion in Chinese goods, Asian companies' profitability is expected to increase by 5-10%in the next 12 months.Although the current valuation shows that the risk of trade upgrades in the market is higher than our expectations, we have a neutral position on the overall risk exposure, focusing on the relative value transactions of Asian stocks.

We still favor high -quality stocks, especially in China, Singapore and Thailand.A good strategy to benefit from rising risk aversion and hedging trade conflict upgrades is to make multiple yen and empty NT $.In the past month, 10 -year US Treasury bonds have helped the investment portfolio to obtain a stable return. When the stock market fluctuates, the US debt has performed well.

(The author is Chief Investment Director of the Asia -Pacific Region in UBS. This article only represents the author's point of view. Responsible editor email: [email protected])