23.05.2019 – Special report. The customs dispute between China and the USA is threatened with escalation, which could end in an open trade war. Washington wants to put at least five more Chinese companies from the security sector on the blacklist. This is an interesting move by the Americans that directly targets the security needs of the communist leadership. We analyse the background and show what opportunities there are for CFD traders.
US attack on Big Brother China
In our stock market report, we had just expressed the suspicion that the USA, after Huawei and Hangzhou Hikvision Digital Technology, the world’s largest manufacturer of video surveillance systems, would probably add further companies to the blacklist. As soon as our Daily Report from Wednesday went live, corresponding news hit the market.
The USA is currently investigating whether other Chinese companies will be blocked from cooperating with global partners. The financial blog “ZeroHedge” named the names: Megvii Technology develops technology for face recognition. iFlyTek is working on software for voice recognition. And Meiya Pico focuses on digital forensics and cyber security. The blog also referred to Bloomberg – the news agency also called Zhejiang Dahua Technology, also a provider of video surveillance technology. These shares have already been shaken on the stock exchange and are likely to be short candidates until the customs dispute is resolved.
Police state in sight
The USA is apparently targeting the Chinese police state. The possible calculation behind it: If the surveillance technology doesn’t work as soon as the economy slides into recession in the trade war with the USA and the people grumble, then it becomes uncomfortable in the Maoist leader bunker. The sheer number of surveillance cameras proves that the old Communist Guard fears the rebellious people. A total of 600 million cameras are to be installed in China. The old cadres still have the memory of the Tiananmen massacre thirty years ago in their minds – the demonstrations for more democracy proved how unpredictable the masses are.
The fact that the Chinese CP is apparently more than nervous in the meantime underscores the nationalist resentments that are currently being stirred up. President Xi Jinping compared the problems with a “new long march”, referring to the country’s founding myth. Recently, state broadcasters have been showing anti-American films about the Korean War again. In addition, the “Trade War Song”, a former civil servant’s idea, is circulating in the social networks. It says: “Trade war, trade war! Tens of thousands of Chinese share the bitter hatred of the enemy”. The song is based on the soundtrack of the film “Tunnel War” from 1965, in which Chinese fight against the invasion of Japanese troops in the Second World War.
The strategy could work out
Our conclusion: The USA has hit a sore spot with the security industry because it is the life insurance of the elite. If Beijing also resists, China could be forced to give in. Especially since the USA has already begun to substitute Chinese goods. As an analysis by Deutsche Bank shows, imports from the rest of the world rose by around 15 billion dollars between the beginning of the year and March, while imports from China fell by around 15 billion dollars. So anyone who believes that China must give in should position themselves in the bull camp on Wall Street – if the customs dispute is resolved, the stock market will boom.
The leadership needs the weak yuan
But until that happens, Beijing is doomed to preserve the prosperity of its people under all circumstances. The means of choice could be to devalue the yuan to make exports cheaper.
Counterattack on Apple and Rare Earth Elements?
Furthermore, the state leadership must not lose face, so countermeasures against the USA could be pending. One possibility is rare earth elements – the majority of US imports come from China; the country currently also produces almost 40 percent of these metals, which are important for the high-tech industry, such as lanthanum, neodymium or yttrium. Since a boycott would put domestic industry champions such as China Rare Earth Holdings in turbulence, the Chinese are more likely to raise prices drastically. If the Americans can’t switch to other suppliers, Chinese corporations would probably gain on the stock market because sales are rising.
Another target for the Chinese anger is already Apple. A boycott campaign is currently underway in China – away from the iPhone towards the Huawei smartphone. It cannot be ruled out that Beijing will also officially tighten the screws at component supplier Foxconn and stop delivery. With corresponding consequences for sales and the stock market price of Apple.
You see: Politics offers CFD traders interesting investment opportunities.
We look forward to the next steps in the trade dispute.
This is what the day brings
The Thursday schedule is well filled. At 2.30 p.m. German time, for example, the weekly US first-time applications for unemployment benefits are being made via the tickers. At 3.45pm the Markit Purchasing Managers Index Service for May follows, ditto the manufacturing index for May. New US construction sales are scheduled for 16:00 in April.
The Bernstein Bank wishes successful trades!
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