THE IMPACT OF TRUMP, BIDEN AND CHINA ON YOUR INVESTMENTS
The big news on the US/China tech war this month has been orders issued by President Trump to ban two Chinese apps from being used in the United States … video sharing app TikTok (owned by Chinese company ByteDance) and WeChat (the platform owned by China’s Tencent) unless sold to an American firm by 12 November 2020.
This may not sound like a big deal but the reality is these two apps are huge. TikTok was downloaded more times than Facebook last year and WeChat is an app that has become an essential part of life for many of the 1.1 bn users of it worldwide! However, ByteDance’s domestic China business is its main driver of growth and it can overcome the loss of TikTok, but other Chinese companies, particularly in the tech sector, are now more likely to pause before investing in the US market as both US and Chinese companies find it increasingly difficult to insulate themselves from broader political events.
Why has Trump taken this bold decision?
Many believe that this is part of a tech war on China and is part of a broader focus by the Trump administration to clamp down on China on a whole range of things from trade and the economy to espionage.
TikTok is very popular with younger people in America, who use it to post videos, songs, dancing and is used for fun. So what is the threat? … the US is concerned about data privacy and protection because the DATA ultimately is going back to China and know that it could be used by the Communist party. India has already banned TikTok citing security grounds following border clashes with Chinese troops and there are politicians in Japan’s ruling party reportedly pushing for restrictions on TikTok. ByteDance is already in negotiations with Microsoft to sell TikTok, but the list of possible buyers is short given that a sale price of US$50 billion or higher for the US, Canada, Australia and New Zealand operations has been reported in the media. Without a sale TikTok’s US business will become worthless and operations beyond the US could be affected; for example, US companies won’t be able to do business with any ByteDance subsidiaries and app stores such as Google Play, which cater to global audiences but are owned by US companies, won’t be able to carry TikTok.
WeChat is slightly different in respect of US concerns, because the Chinese Government monitors WeChat and uses it to spy on its own citizens. The fear here is that any American citizens could be having their WeChat messages and calls monitored by the Chinese Government. Tencent is an even bigger and more powerful company than ByteDance so for Tencent, the impact should be limited as its number of US-based WeChat users are a tiny fraction of its 1.2 billion total users and shutting WeChat’s US operations will barely dent its revenues.
Will China retaliate? …
So far not, but if it chooses to China could hit the US technology sector and others hard. For instance, Apple relies on China for its manufacturing and also about 20% of its global revenue comes from the sale of the iPhone and other products in China. Apple could also get caught up indirectly in the ban on the use of WeChat if it’s extended to the use of WeChat in China. This is because WeChat is much more than a messaging service … the Chinese use it to complete a whole range of day to day activities on their iPhones from ordering food, shopping, completing digital payments to wealth management; so a ban on WeChat use in China would leave the Chinese Consumer faced with the choice of keeping their iPhone or keeping WeChat! If they decide to keep WeChat rather than their iPhone that would hit Apple really hard.
US Chip manufacturers would also be hit hard, including Intel, who rely on China for between 25% and 50% of their global sales.
China and the US Election
Trump spent the first three years of his presidency being hard on China when it came to trade, but not in other areas, such as China’s clamp down on pro-democracy supporters, apart from 2020 … the reason? He didn’t want to derail trade talks. So why the swing back again now?
Without doubt Trump blames China for the spread of the Coronavirus. In respect of his election campaign it is convenient for him to blame the downturn of the US economy on China due to the virus, whilst at the same time boasting about the fantastic growth in the US stock market. He’s treading a fine line with the potential for this to quickly escalate to a situation where US national champions such as Apple and Nike are banned from China. His actions against China are likely to continue between now and the US election on 3 November 2020, and he’ll likely push it as far as he dares without wanting to risk a reaction from China. If China react it could cause a decline in the US stock markets, which as you will see from the following chart, at the time of writing are almost at record levels, so Trump will stop short of damaging the markets whilst pushing China as far as he thinks is possible.
Does Biden share the same view?
Joe Biden is less unpredictable than Trump and not likely to be making declarations on Tweet, with decisions re China more likely to be as part of an organised decision-making process with disagreements kept behind closed doors rather than spilling out on to social media. This in turn would make it easier for China to deal with the US. However, the one (and only) thing both democrats and republicans agree on is that the US needs to take a tougher stance on China. So, no matter who wins the US election China is in for a rough ride! The only question should he win, is how far will Biden go and how different will he be from Donald Trump when it comes to China.
Investing around a US election and Covid 19
The only thing that can be said with any certainty is that, whatever the course of the US election campaign and the result, volatility seems likely to continue. Within your own portfolio, are you looking to generate income or growth or create forms of diversification that can allow you to blend your portfolio so it can meet those needs as they evolve over time? Core to this is to have a very strong Investment Manager who has experience, and to ensure that sufficient diversification is maintained within your investment portfolio.
The other key to success is making sure your portfolio holds tactical equity funds that take advantage of the growth areas around the world geographically and in terms of industry sector.
HOW HAVE YOUR INVESTMENTS PERFORMED SO FAR IN 2020?
We’ve been monitoring how our portfolios are reacting in this unchartered territory and due to the diversification and tactical equity exposure we hold we have seen some great results. Interestingly, it’s the global tactical holdings, including technology, health and US funds that are showing fantastic returns and protecting portfolios in the current climate rather than the more traditional multi-asset mix. We will be monitoring the US and China situation closely over the coming months whilst positioning our portfolios to maximise growth opportunities as they arise.
If you’re concerned about your own portfolio, speak to Speed Financial Solutions today – and remember that the investment environment changes all the time, so have regular reviews of how your affairs are structured to ensure that your portfolio is aligned to your attitude to risk AND offers you sufficient diversification to reduce risk as much as possible.
If you would like assistance from us contact firstname.lastname@example.org
Speed Financial Solutions are a highly qualified financial services provider looking after clients throughout Spain and the UK. We provide a discreet and comprehensive service to individuals, and our service is tailored to suit your needs taking advantage of tactical opportunities as they arise in respect of your pension planning. We seek innovative solutions for our clients and employ our skills, based on many years of experience, to apply tax legislation to your advantage. Our relationships are built on trust and mutual respect. We are ready to answer your questions, giving you the confidence you want when dealing with a sensitive issue such as discussing your pensions, investments and savings.
Our Principal, Andrea Speed, is a qualified Discretionary Investment Manager specialising in Investment and Risk, Taxation and Trusts, and a qualified Pension Specialist. Andrea is also a Fellow of the Chartered Insurance Institute (CII), which is the world’s largest professional body for insurance and financial services in the world.
Fellowship is the highest qualification awarded by the CII and is universally regarded as the premier qualification. It is a major achievement in the financial industry and demonstrates the acquisition of skills and knowledge at the highest of levels.
Along with a Fellowship, Andrea is a CII Chartered Financial Planner.
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The contents published are not recommendations or decision aids for your investment decisions and they do not constitute any type of advice. We are not tax advisers and independent tax advice should always be sought.
Andrea J Speed FPFS (DM), M.A.
Principal, Fellow and Chartered Financial Planner
Speed Financial Solutions
27 August 2020