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Portways-Magazine-April-2018-Issue- Second Week

WORLD ECONOMY 10 Chinese

WORLD ECONOMY 10 Chinese companies react to U.S. tariffs announcement China hit back on Wednesday at the U.S. government’s plan to slap tariffs on $50 billion in Chinese goods, retaliating with a list of similar duties on key U.S. imports, and adding to fears that the world’s two largest economies are heading towards a trade war. Below are some of the reactions from some Chinese companies and trade bodies to Washington’s announcement of proposed tariffs on Chinese imports into the U.S. China Eastern Airlines The airline said on Wednesday that it could adjust capacity and frequency on the China-United States route in the expectation that the trade dispute could impact passenger travel and cargo. It has set up a group to come up with a relevant plan. “A trade war is not good for the two countries. We hope that China and the United States can negotiate together to avoid a trade war,” said the carrier’s Chief Executive Ma Xulun. When asked about the airline’s plane buying plans, he said that “it’s too early to say, we will keep an eye on the situation of the China-U.S. trade war.” TCL Multimedia A representative for China’s largest TV manufacturer said it plans to shift some TV production from its Huizhou headquarters in southern China to its factory in Mexico if the proposed tariffs are implemented. He said the company expects the impact to be manageable as the U.S. accounts for just over 10 percent of its sales, and production capacity at its Mexican factory can be increased without huge additional costs. He added that the company also has a factory in Vietnam that can replace some of its China production capacity if needed. China Chamber of Commerce for Import and Export of Machinery and Electronic Products The industry body, which represents nearly 10,000 manufacturing firms, said the United States’ trade investigation into Chinese firms had “no factual basis”. It noted in a statement published by state broadcaster CCTV that the Chinese government was ready to take equal measures on U.S. products to safeguard China’s interests and said it would give Beijing its full support. COSCO Shipping The shipping company said on Tuesday that there was currently little evidence that the tensions were affecting cargo volumes but noted that it had reduced U.S. capacity slightly over the past few years as part of a restructuring. China’s largest shipping company, though, said that it was ready to take “appropriate action” to protect its market should it start to see an impact. It added that trade between China and the United States currently contributes to about 15 percent of its cargo volumes. CRRC Corp Ltd An executive at the train carriage maker, which has won contracts to supply Los Angeles, Chicago and Boston with metro cars, said it was still researching the impact of an announced 25 percent tariff on 1,300 Chinese products, including advanced rail equipment. He said the company still needs to “carefully look at what items the list affects” before making an assessment. He declined to be named as he was not permitted to speak to the media. A CRRC spokesman declined immediate comment. Air China The airline said last week that it did not expect to see any significant impact on the Chinese flag carrier’s passenger and cargo volumes. “The relationship between the United States and China is a complementary one. It’s very strong. This trade war is like a game,” said the company’s board secretary Zhou Fen at a post-results briefing. “We don’t think this issue will impact on our passenger and cargo volumes, there shouldn’t be much impact.” Source: Reuters

STOCK 11 Emerging Market Investors Say Trade War Is Signal to Buy Escalating trade threats between the U.S. and China, the world’s two biggest economies, are creating opportunities to buy emerging-market assets, according to some of the world’s largest money managers. After the Trump administration proposed tariffs on 1,300 Chinese goods, Beijing responded with a counter-punch: an additional 25 percent levy on about $50 billion of U.S. imports including soybeans, automobiles and aircraft. That sent emerging-market currencies down the most in nearly two months, while developing-nation stocks fell to their lowest since early February. Simon Smiles, chief investment officer at UBS Wealth Management for ultra-high net worth clients, said the potential market overreaction gives further reason for money managers to buy into weakness. “We’re all-in, in terms of the growth impulse, in terms of the relative valuations and that’s against a backdrop of being constructive on risk assets more broadly,” he said on Bloomberg TV, adding that UBS is overweight emerging-market equities and hard-currency debt. Here’s what other money managers and strategists had to say: Gene Frieda, global strategist at Pacific Investment Management Co.: • “The market reaction is confused, reflecting the fact that it has no historical narrative on which to fall back. Today’s Chinese actions were not surprising, but the market response shows how confidence has been diminishing” • “You cannot separate tweets against tech firms from tariff actions against China. This is a material change relative to the first quarter, when the market was bulletproof to bad news” • Frieda said most probable scenario is a negotiated settlement before the first round of tariffs kick in on both sides. Yet second-most probable is that round one happens with the goods that have now been put on the table • China has a strong desire to deescalate the situation • Argentina and Brazil could be “unintended beneficiaries” from soybean tariffs Anders Faergemann, senior fund manager at PineBridge Investments in London: • Increased tensions may actually benefit emerging-market assets as markets could dial down their optimistic view of global synchronized growth and ultimately global yields will come down. That would add to the return outlook for spread products such as EM, he said • “Valuations have already adjusted sufficiently to compensate for the increased equity volatility and EM spreads are better value now” • “As long as China’s retaliation to the U.S. provocation remains within reason, which is our base case, fixed income should benefit and the appeal of EM remains strong and it stands to benefit from investors returning to a 2017 frame of mind” • Faergemann favors the Mexican and Colombian pesos in this scenario as markets seem to be overestimating political risk associated with their upcoming elections Anastasia Levashova, a fund manager at Blackfriars Asset Management in London: • A trade war will have a mixed impact on EM countries as China buying less soy, avocados and wine from the U.S. means they’ll buy more from developing nations. On the other hand, no one knows where it will escalate, she said. • More important indicator of direct competition between the U.S. and China was the launch of renminbi crude oil futures, a clear trend of strengthening their own currency and trade balance Kathy Jones, chief fixed-income strategist at Charles Schwab: • “It looks like a mixed bag for EM. On the one hand, it could benefit agricultural producers like Brazil and Argentina, but I doubt that is enough to offset the concerns about slowing global growth and protectionism” Sebastien Barbe, head of emerging-market research and strategy at Credit Agricole CIB • “It fuels the risk of a trade war, but we are not there yet. China has intensified its rhetoric, but I think we are still in a hard negotiation” • If risks continue to intensify, Asian currencies would probably be most affected as some countries would be hit given supply chains and considering economies are more open to trade than other developing regions Sean Newman, an Atlanta-based money manager at Invesco Advisers: • Although trade war fears should be taken seriously, it isn’t a factor in his longterm outlook for emerging-market assets • “We like buying here but are conscious that trade tweets may present some downside risk,” noting Trump’s tweets on Monday, where he “hated Nafta in the morning and wanted a deal by the afternoon” Greg Saichin, chief investment officer for emerging-market bonds at Allianz Global Investors • “I still believe this is a negotiating stance for the U.S. — somewhat justified, somewhat politically driven by the mid-term elections in November. The Chinese understand this” • “Up to this point, Mexico was getting all the collateral damage given the negative NAFTA rhetoric. Now I’m not so sure. If this escalates into a full blown trade war then global growth will decrease with negative repercussions for oil and metals” • Marginal producers for oil and metals, or competitive producers with high fiscal break-evens will be negatively impacted, he said. Frontier markets such as Ghana, Angola, Mozambique, Zambia and Ecuador, which rely on these commodities as a primary source of foreign-exchange generation, could be particularly hurt. Alejandro Cuadrado, global head of FX at BBVA in New York: • Cuadrado says he doesn’t share investor fears yet and hasn’t altered his long-term outlook for emerging-market currencies. • He favors the Colombian and Argentine pesos for their carry Source: Bloomberg

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