Thursday, 18 July 2019 09:06

The Trade Truce is Rapidly Evaporating

(Washington)

Markets breathed a big sigh of relief at the G20 a few weeks ago when Trump announced that after meeting with Xi, China had agreed to return to the negotiating table with the US. This sent expectations surging that a trade deal between Washington and Beijing was within reach. However, all that hope seems to have been for nothing, as Trump and China are reportedly having trouble even making it back to the table because of being at odds over Huawei.


FINSUM: To be honest, we think the US and China are so at odds over trade that it is hard to imagine they will be able to resolve these tensions any time soon. Some are even saying this is going to be the Cold War 2.0.

Published in Eq: Total Market

(Washington)

After the “trade truce” at the G20 it was looking more like the US and China may get a trade deal done soon. However, news out recently says otherwise, as China has not boosted its purchases of US agricultural products. Such a move was a key tenet of the agreement Trump apparently struck with Xi at the G20, but Beijing has not followed through on the promise. Trump complained publicly about this yesterday, but China denies they ever made such an agreement.


FINSUM: This seems small and petty but it is precisely not the direction that one would like these talks to be headed in.

Published in Politics

(Washington)

Donald Trump did something many might not have expected when he met Xi Jinping recently at the G20 conference: he told him he would dial down the criticism of China regarding the demonstrations in Hong Kong in order to get Beijing back to the negotiating table. The offer apparently echoed a previous one he had made to Xi in the week leading up to the conference. The plan worked and China has agreed to resume trade talks.


FINSUM: While many may disagree with the concession to China, we think this shows one thing very clearly: Trump does not want to let the trade war derail the US economy or markets and will likely do whatever is in his power to keep them afloat.

Published in Eq: Total Market

(Washington)

Will the US and China make a substantial trade deal? That is a trillion Dollar question for markets. Some argue that China may defer doing any deal and take the risk that Trump does not win the election, effectively letting the clock run out. However, an astute view is that China might be desperate to do deal while Trump is still in office. The reason why is that if Trump were to lose to a Democrat, who in all likelihood would be a more conventional US president that takes a much friendlier approach with international allies, then China would be in a very compromised position. A Democratic president would likely approach the Chinese trade deal with a much more united front of trade allies, which would be a worst case scenario for Beijing.


FINSUM: The irony of this is that Trump has been by far the hardest president on China in memory, but at the same time, the Chinese have the best chance at a good resolution by dealing with him.

Published in Eq: China
Friday, 05 July 2019 08:48

The Best Way to Play Small Caps

(Chicago)

There is no arguing it, small caps have had a rough year. While the S&P 500 is up 9.4% from a year ago, the SmallCap 600 is down 8.4%. The divergence has been surprising to many, as several macro trends appear favorable for small cap appreciation, such as the trade war. However, for small caps to really get wind in their sails, things needing to be looking up in the economy, which seems unlikely in the short term. Therefore, one of the best ways to bet on size in your portfolio is to buy a specialized fund like the iShares Edge MSCI USA Size Factor ETF, which holds stocks in inverse proportion to their size. The smaller the stock, the greater its weight in the fund, helping investors skew towards small stocks, but not totally away from larger ones. The fund has outperformed the S&P 500 this year.


FINSUM: This is a very specialized angle, but does make some sense. We agree with the assessment of small caps right now—the underlying economy is not favorable for small cap bullishness.

Published in Eq: Small Caps
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