Greater China: Rising tensions
Wednesday, January 04, 2017 //
It is pointless wasting your time on the Greater China markets: their Economic Time® is bad, and geopolitical tensions are rising
Richard LighthizerIn all probability, Trump will appointed another China hawk, this time to head his top trade-negotiating agency, the US Trade Representative. Here is today's South China Morning Post's (SCMP) insight: "Under Trump, the US trade representative - who traditionally has had authority over trade negotiations - will not serve as the main architect of US trade policy...Instead, the Commerce Secretary and Navarro's new office (as Director of the newly established National Trade Council) are expected to play more important roles in setting the trade agenda." This implies that Sino-US trade relations must become more volatile.
"Flying Sharks" in the South China SeaHere is what we read in today's SCMP: 'China's (sole) aircraft carrier based J-15 fighter jets made a high-profile debut over the South China Sea on Monday amid tensions with the United States...The Liaoning and its escorts have been carrying out a series of exercises since December, including a live ammunition drill in the Bohai Sea and a patrol in the Western Pacific that took it close to Japan's Okinawa and Taiwan...with the drills in the various maritime areas, the carrier has progressed from being a training platform to being a combat-ready vessel...Monday's operations were the Liaoning's second period of training in the South China Sea, where China's vast claims are disputed by various neighbours...The latest drill, which saw warships sail around the east coast of Taiwan, came at a time of rising tensions between the mainland and Taiwan following Taiwanese President Tsai Ing-wen's refusal to recognize the 1992 consensus on one China and her phone conversation with ...Trump...Beijing said the drill was routine, but Taiwan called it part of a rising threat from the mainland." This implies that Sino-US defense relations must become more volatile; indeed, we would not be surprised to see China "push the envelope" by instigating some form of mild military attack on Taiwan.
Evidence-based investment implicationIf you are thinking of repeating 2016's "low vol" trades, think again! Trump will increase tensions and thus volatility as regards trade and military relations with China. This increased tension has to take its toll on Greater China's stock markets.