Morning Brief: U.S. and China relations take center stage
Javier E. David breaks down Tuesday's Morning Brief, which details the relationship between the U.S. and China as tensions could be flaring up between the two countries after the pandemic wanes down and puts the U.S. and China relationship in full focus within the market.
Video Transcript
- I want to move to China here and the perception of China here in the United States. That's what Javier David, our editor, wrote about in the Morning Brief today. You know, we've been talking to Javier a lot about China sort of on a day to day basis, right, but through the prism of movers and China cracking down on various segments of its economy. What you did in the brief though was sort of take a broader and bigger view of the threat that the US-China relationship potentially still plays in the global economy. So talk us through your thinking on that.
JAVIER DAVID: Yeah, you know, in researching this article it struck me how a number of analysts on Wall Street have pretty much picked up on this theme. Over the last several weeks or even months rather you've seen a number of things coming out of China, and I think that what I tried to do here is connect the dots.
Obviously we have the Jack Ma incident where they sort of cracked down on him. Yesterday's headline was Alibaba and some policies that were set to impact the EV market. And then obviously playing the big macro theme here-- well, there are two of them really-- COVID-19 and the ongoing trade war, which a number of analysts have said has no signs of resolution.
Fitch Ratings just this week actually put out a research note saying that they really do believe that China's slowdown is triggering a policy recalibration that has impact on global money supply and that has a knock-on effect on risk, appetite, and the ability of stocks to continue to defy gravity. So taken together, you have all of these things playing out.
But what they spell is China is moving in its own direction. The United States is moving in its own direction. In order for investors to feel some semblance of, I guess, say, a comfort with continuing to buy stocks or continuing to have risk appetite in the face of COVID-19, the two largest economies in the world kind of have to work together, and it seems like that's not happening and it's going to get worse probably before it gets better.
- Yeah, and the SEC chair Gary Gensler writing in-- in "The Wall Street Journal" about how a number of companies could get delisted because they're not-- it looks like they're not going to be following along with US regulations. And so I guess what's interesting is in the market, as I say, the reaction has really been confined to US-listed China shares. But from the people you were talking to, does it feel like that there is a bigger potential risk here?
JAVIER DAVID: Well, there certainly is a bigger potential risk. I think one of the risks is obviously to global growth. Another instance is to companies that operate in China or that are heavily reliant on Chinese demand. That includes Tesla. That includes Apple. That includes a lot of the tech names that we're familiar with here in the United States.
But China, you know, obviously doesn't allow foreign ownership. Their structure allows their companies to raise capital on US exchanges, but they do so in a way that's not terribly transparent. Again, the bigger risk, and I made this point in the article-- in the newsletter this morning, is to US or Western companies that have been allowed to operate. I mean, China is demonstrating that it is a very tightly controlled government first and a market economy second, and we're starting to see that most of their inclinations lean toward control, power, being very, very, very non-transparent.
And this is a really big problem if you are a US investor that wants to invest in China or US company that is operating there. Or as we're seeing increasingly, Chinese companies that want to list in the United States, they're finding that they're not able to escape sort of the tendrils of the Chinese government in a way that they probably would have even just a couple of years ago.
- Yeah, right--
- And as we know also-- Oh, sorry. Go ahead.
- Yeah certainly-- yeah, I'm just going to add to, you know, that the Op-Ed by Gensler was-- was certainly eye-opening, Javier, just to see hundreds of potential companies-- Chinese-based companies delisted. I mean, where do investors go? If they dump those stocks, that could spill over even more into US markets.
JAVIER DAVID: Yeah, and a lot of those names are listed on major exchanges-- the New York Stock Exchange, the NASDAQ, et cetera, some of the smaller exchanges. But still, American companies or American investors are-- do have money parked in these companies. They stand to lose their shirts if there some sort of mass movement to delist Chinese companies based on the lack of transparency or some sort of a war-- not an actual hot war but sort of a cold war with China, which has been brewing, quite frankly, for-- since the Trump administration.
- Yeah, definitely something to keep an eye on. And as we know, also the Biden administration has taken sort of a hard line adversarial stance, I think you could say, when it comes to China. Thanks, Javier. Appreciate it.
