More Noise about China US Trade
Markets continue to struggle as the US and China ramp up their rhetoric accusing each other of negotiating in bad faith. The negative headlines have impacted market sentiment. The most recent headline focuses on China’s threat to withhold shipments of rare earth minerals used in industrial manufacturing in the United States. We expect the disagreement to continue for some time until a settlement is hatched.
I was asked by Barron’s for my comments on China as they understand how important this topic is to investors. We are a United States focused investment firm and that will always be the case. Our analysts and portfolio management team talk with US companies, assess results, and focus on investments that are domiciled in the United States. We believe this is most appropriate for most investors and we value the risk profile of these assets rather than excessively investing in emerging markets.
Still, because China is such a significant global customer for US goods and services, it’s important to understand what’s happening in this country which is why I often visit China in different regions to understand the economy and sentiment.
In fact, I was asked to be the moderator for an event at Stanford University featuring a Chinese delegation looking to interface with US academics and companies about doing business in China. This event, presented by CNBC Asia, should provide for interesting dialogue and I will certainly keep you posted about what I learn at this June event.
Here are a few excerpts from the Barron’s interview that went live yesterday. The full link is provided below.
If you have any questions about this information, please let me know! Always here to help!
Q: Why the interest in China in particular?
A: Because I think China is going to be a major driver of economic growth. It’s a fast-growing economy, and what happens in China really impacts the global economy more than virtually any other economy besides the United States.
So when you invest in multinationals, for example, it’s important to understand how these companies are going to be impacted by what’s happening in China. Let me give you one example. I was in China on the day the latest iPhone was released. I was in a second tier-city called Fuzhou, which is about an hour from Hong Kong. And what was really interesting is I was in the Apple Store in an upscale mall in Fuzhou, and there was literally nobody in line to buy the iPhone. And not only was there nobody in line, but when I talked to the [employees] in the Apple store, [they said] any configuration that I would have wanted they had available for me to buy.
And that probably wouldn’t have been the case in the past. So it really gave us an insight on what perhaps the Chinese consumption of Apple products might look like—especially when directly across from the Apple store was a Huawei cellular phone store selling products for 50% less. So on the day that iPhone is released, I talked to employees at Apple stores in rural China. That’s just not something you’re going to read about [in the U.S.].
Q: Broadly, how would you say the trade war is affecting China’s economy?
A: Well I know that President Xi today has talked about how they are on the “long march forward,” but I think it’s had a really significant impact. It creates a tremendous uncertainty, and that uncertainty has really been very concerning for investors. I think its frozen infrastructure investments, and I think it has absolutely affected the real estate market.
And China is really remaking its economy to be more balanced. If you remake your economy and you have these kinds of bumps in the road, it creates challenges for that. That’s why ultimately, I think there is going to be a deal -- but it’s got to be a deal where no one is painted as the loser.
Q: Were you surprised when the trade talks broke down recently?
A: No, not in the least. I think this is just what happens in negotiations. When you say that they “broke down,” it kind of implies that there has been, you know, some implosion. I think that they made a lot of progress, and it sounds like China decided that maybe it was moving a little bit too fast and too far; they pulled back, and I’m pretty confident there are probably behind-the-scenes discussions occurring now. But I think I would describe this as just part of the negotiation process.
Source: May 30, 2019 Barron’s article by Steve Garmhausen