Markets in flux as US-China spat worsens

Fears of a second wave and mounting political risks argue for investor caution

As investors remain wary of a surge in new Covid-19 infections, worsening trade relations between the world’s top two economies is seen further stoking panic among market participants.

“Markets have rallied sharply on unrelenting policy stimulus, but Covid-19 has yet to be defeated,” analysts at Europebased asset manager Pictet Asset

Management wrote. “Fears of a second wave and mounting political risks argue for investor caution. On balance, we do not believe that markets can rally much further in the months ahead,” the analysts added.

“We therefore keep our asset allocation neutral across equities, bonds and cash.”

Markets have been losing much of the momentum built over the past weeks as the US, which is battling a renewed surge in Covid-19 cases, said it was looking to impose a fresh round of sanctions on 11 individuals, including Hong Kong leader Carrie Lam, which flared up prevailing tensions with China.

Washington has been critical of Beijing’s recent decision to pass a sweeping national security law limiting Hong Kong’s autonomy and banning literature critical of the Chinese Communist Party.

They are also struggling to mend trade relations, with intellectual property theft proving to be a sticking point.

Bans on Chinese apps

The reason why these developments were not received well by investors globally, particularly Asia, is because the news followed a day after US President Donald Trump executively banned Chinese tech giant Tencent’s messaging service WeChat and ByteDance’s popular short-video-sharing app TikTok.