The Philippine Star

A truce

- WIL­SON SY NBA Basketball · Basketball · Sports · United States of America · China · National Basketball Association · Donald Trump · White House · Houston · General Motors Corporation · Hong Kong · Houston Rockets · Philippines · Xinjiang · James Harden · Phase 1 · Phase One

Fund man­agers and traders were all glued to their TVs and mo­bile phones as they mon­i­tored de­vel­op­ments head­ing into the Oct. 10 and 11 meet­ings be­tween the US and China. Con­flict­ing news caused the mar­ket to go on a roller­coaster ride, with short term traders get­ting whip­sawed as they tried to trade each new event.

Scary head­lines

As the start of US-China ne­go­ti­a­tions drew closer, in­vestors scanned the head­lines of ma­jor busi­ness web­sites and TV chan­nels. Un­for­tu­nately, what greeted them was a se­ries of scary head­lines which in­di­cated that a trade deal was be­com­ing less and less likely. A se­ries of rapid fire de­vel­op­ments in the past two weeks, from cap­i­tal con­trols to hu­man rights vi­o­la­tions to satir­i­cal cartoons to the NBA, buf­feted traders and by­standers alike.

Shock and awe

Through­out the week, op­pos­ing news from dif­fer­ent sources on both sides of the fence greeted in­vestors morn­ing and night. This caused stocks to see­saw be­tween gains and losses, leav­ing many in­vestors in a daze. Though there are too many to list in this ar­ti­cle, be­low are some of the most sig­nif­i­cant news ar­ti­cles which moved mar­kets:

Oct. 8 — US black­lists 28 Chi­nese sur­veil­lance firms and pub­lic se­cu­rity bureau, bans visas of of­fi­cials in­volved in mass de­ten­tions, re­it­er­ates po­ten­tial cap­i­tal con­trols such as delist­ing of US-listed Chi­nese com­pa­nies

Trump ad­min­is­tra­tion an­nounced that it is black­list­ing 28 Chi­nese sur­veil­lance firms and pub­lic se­cu­rity bu­reaus over hu­man rights vi­o­la­tions against Uighur Mus­lims in the Xin­jiang re­gion. This was re­leased on Oct. 8 while mi­dlevel tech­ni­cal staff were hav­ing meet­ings and a mere two days be­fore the start of high level ne­go­ti­a­tions. At the same time, they re­it­er­ated a pre­vi­ously re­ported dis­cus­sion re­gard­ing cap­i­tal con­trols (see A fight for love and glory, Oct. 7, 2019). This could ei­ther be a poorly timed ac­tion or a de­lib­er­ate act to cre­ate shock and awe that will pres­sure the Chi­nese.

Oct. 8 — Later in the day, China in­di­cates that it is ready to dis­cuss a par­tial deal, but it ex­pects no fur­ther tar­iff threats

Off­set­ting the scary head­line above was news that China was of­fer­ing a par­tial deal. In­stead of a trade deal cov­er­ing all top­ics, China of­fered to talk pri­mar­ily about re­duc­ing the trade deficit with the US through the pur­chase of more agri­cul­tural prod­ucts. How­ever, this was con­tin­gent on the sus­pen­sion of any tar­iff in­crease. China also re­fused to budge on Trump’s main de­mands re­gard­ing in­tel­lec­tual prop­erty vi­o­la­tions, tech­nol­ogy trans­fers and in­dus­trial pol­icy re­forms.

Oct. 9 — A ma­jor daily re­ports that the Chi­nese con­tin­gent led by Vice Pre­mier Liu He is leav­ing one day early as mi­dlevel talks held ear­lier in the week fail to bear fruit

This re­port from the South China Morn­ing Post spooked mar­kets, send­ing the Dow Jones in­dex down more than 300 points as traders had to grap­ple with the pos­si­bil­ity of tar­iffs be­ing raised this week.

Oct. 10 — “Big day of ne­go­ti­a­tions with China. They want to make a deal, but do I? I meet with the Vice Pre­mier to­mor­row at The White House.” — Trump’s twit­ter

With US eq­uity in­dices drop­ping sharply, Trump felt com­pelled to re­act as he sees the stock mar­ket as a ma­jor barom­e­ter of his suc­cess. He tweeted that the trade ne­go­ti­a­tions will last two days, with Vice Pre­mier ac­tu­ally com­ing to the White House on Oct. 11. This, plus his sug­ges­tion that China is of­fer­ing a deal, caused the mar­ket to erase its losses ear­lier in the week.

NBA gets dragged into the US-China trade war, cul­tural war

Even the NBA got dragged into the trade war when Hous­ton GM Daryl Morey tweeted that he was sup­port­ing the HK pro-democ­racy move­ment. Though this Oct. 4 tweet has since been deleted, the back­lash was quick and de­ci­sive. In a mat­ter of days, Hous­ton Rock­ets mer­chan­dise had been re­moved from Chi­nese e-com­merce web­sites and all of its Chi­nese spon­sors had backed out. De­spite Hous­ton’s star player James Har­den try­ing to defuse the sit­u­a­tion by say­ing “We love China,” China re­mained adamant. It be­came clear that this trade war also trans­formed into a cul­tural and ide­o­log­i­cal war. In fact, Trump even ad­mon­ished two NBA coaches for siding with China in­stead of him.

Very sub­stan­tial phase one deal

Fi­nally, the day of reck­on­ing had come. For­tu­nately for in­vestors, Trump had good news. He said the US and China had come to a “very sub­stan­tial phase one deal.” To be writ­ten over the next three weeks, it will ad­dress in­tel­lec­tual prop­erty and fi­nan­cial ser­vices con­cerns, along with pur­chases of $40-50 bil­lion worth of agri­cul­tural prod­ucts by China. Call­ing it a “tremen­dous deal” for farm­ers, he added that once Phase 1 is signed, Phase 2 will “start al­most im­me­di­ately.” In ex­change, Trump is sus­pend­ing the Oct. 15 in­crease in tar­iffs of 25 per­cent to 30 per­cent. How­ever, he left the Dec. 15 tar­iffs on the ta­ble as the sub­ject of ne­go­ti­a­tions in the fu­ture. When asked what changed since April, Trump said that this deal is “big­ger.” When the same ques­tion was posed to Vice Pre­mier Liu He, he sim­ply leaned back and said “co­op­er­a­tion.”

Is a trade truce enough?

For­tu­nately, rationalit­y pre­vailed. Fri­day’s truce marks the first sig­nif­i­cant de-es­ca­la­tion of the US-China trade war, which of­fi­cially started on July 6, 2018, 12:00 a.m., East­ern time (see It’s Of­fi­cial — Trade War Be­gins, July 9, 2018). The Dow Jones in­dex rose more than 300 points last Fri­day. This was a big re­lief be­cause the reper­cus­sions of an es­ca­la­tion in the trade war amidst a slow­ing global econ­omy could be cat­a­strophic. Even though this is just a par­tial deal and the de­tails still have to be ironed out, this is at least a step in the right di­rec­tion that caused mar­kets to re­cover. How­ever, the devil is in the de­tails. See­ing how the trade war de­vel­oped in the past year, it may ei­ther re-es­ca­late or im­prove from here. Let us hope that the US and China fol­low through with a mu­tu­ally ben­e­fi­cial Phase One agree­ment that even­tu­ally leads to more de-es­ca­la­tion in the fu­ture. A suc­cess­ful Phase Two agree­ment that ad­dresses ma­jor con­cerns of both sides may lead to a more last­ing re­cov­ery for the global econ­omy and nor­mal­iza­tion of fi­nan­cial mar­kets.

Philequity Man­age­ment is the fund man­ager of the lead­ing mu­tual funds in the Philip­pines. Visit www. to learn more about Philequity’s man­aged funds or to view pre­vi­ous ar­ti­cles. For in­quiries or to send feed­back, please call (02) 689-8080 or email ask@

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