Apart from being the mostly widely followed news since July 2018, investors are becoming increasingly concerned as China and the US embark upon a full-scale trade war with both sides implementing new trade tariffs. The latest data from the US Department of Commerce posted recently, albeit being delayed by the long-standing US government shutdown, showed data alluding to a narrowing trade deficit with China. This is led by a more than expected decline in US imports of Chinese consumer goods like cars and mobile phones.
Although Trump’s efforts have successfully brought down the US trade deficit with China, economists still believe that there are no real winners in this trade war. Both US and China are expected to experience the sharpest declines in real exports and GDP. Such a scenario has restrained real fixed investment, especially China, which will most likely face substantial losses as foreign and domestic investors take a more cautious stance to capital spending in China. This trade conflict has also resulted in detrimental effects on the US economy, as retail, manufacturing and construction companies must pay more for raw materials due to the tariffs imposed.
Figure 1: Quantflix Analytical Tool
The Quantflix Analytical Tool screened through trending news articles on several financial news providers (FT, WSJ etc), finance aggregating sites (Google Finance, Seeking Alpha etc) and email newsletters (Morning Brew, Finimize etc) and generated a word cloud which gives a brief snapshot of crucial keywords (Figure 1). Not surprisingly, the cloud highlights concerns surrounding the trade war and how it affects the Chinese and US markets. The plunge in several stock indices from their highs recorded in 2018 alludes to investor concerns regarding the two largest economies engaged in trade tensions happening against the backdrop of rising interest rates and slowing global growth.
Unsurprisingly, investors shift their focus towards other markets for investment opportunities, with South-East Asia holding the top spot, as the investment ecosystem enters a new phase of growth. Factors such as favorable demographics, rapid growth and low costs places South-East Asia in a unique position to draw in foreign direct investment, especially in manufacturing, information technology and mining.