• Jan

Trading the trade war US / China

Updated: Sep 30, 2019



This post will not include any political opinions, because in real trading world those are meaningless and potentially dangerous as they create too strong biases. This post is mainly focused on how to extract edge out of current ongoing conflict between US and China. Often in trading the best opportunities will come from the most bearish and negative events around the globe, such as economic crises, conflicts, embargos and current asymmetric conflict between China and US is one of those events. Often retail traders completely miss those opportunities or usually only see them after the fact in hindsight years after, wasting solid trading opportunities.


In order for trader to understand the dynamics of why current conflict has happened this requires studying of history, geopolitics, capital recycling of deficits, petro yuan/dollar flows, military pacts, there is a lot that goes into it. By no means will i cover anything of this on this post, since this would require massive post which is over my capacity to write and is up to individual macro trader to study on their own. I am merely condensing down how to play the ongoing conflict trough the active catalysts. But before anyone does that it is important to understand the flows behind it by studying the background otherwise conviction cannot be build on play. Understanding the major dynamics behind the current conflict will help trader understand why current conflict might not end any time soon, and why president in charge of either countries makes no difference, the conflict is likely to endure no matter who is in the seat, based on all the macro variables plus putting the play into historical pattern.



Structure of the pattern



Major "super-powers" tend not to solve their disputes trough negotiations. Strong vs weak player use this approach, or weak vs weak player, but when two strong players come heads on usually none of them is willing to step down. This creates the predictable outcome of further conflict and further escalation of the current ongoing events / catalysts.

This then produces large amount of fresh bearish catalysts in the market over time, which changes the capital / investment flows for long time and have drastic impact on assets, especially on the markets of weaker player. What defines a weaker player in the conflict between the two? From market performance side, the one that takes more inflation damage and needs more time to adapt than the other, basic rules of attrition conflict. Money at the end does not lie, capital outflows are reflected trough the performance of stock index and currency, exposing the weaker player.

Size of economy, military strenght or other factors usually do not matter from the asset performance side, it all comes down to who has safer "safe haven" markets, more liquidity, status quo and is taking less damage in asymmetric conflict. Capital will shift from one player to the other in such case. This is long term game, and thus trader should adjust to expect further future catalysts to come out of such conflict. There were 14 such major conflicts in the history since 0 AD, all of which started as cold war between two major deficit countries (often starting as trade war), the one with status quo (usually the ruling empire) and the one that is about to challenge it. In all of such cases, cold war brought the bearish market sentiment for long while, especially on the markets / economy of weaker players. Most of those events triggered de-globalization and forced isolation, forced by the player that is initiating aggression.


Time decay



Timing on the fresh catalyst should dictate how trader should approach the play. If news / catalyst is fresh (few hours) and its size is huge then trader can be potentially more aggressive on sizing and with looser entries, and the more time decay is put on that catalyst announcement the more defensive and less aggressive should trader be. Usually the first day is when the direction will be very strong one sided, and then over days it will become more choppy. Thus as the catalyst ages it makes it better swing trade but lesser intra-day trade because it takes more edge and patience since market will price the catalyst up to extent over time more and more.


Time is huge addition to edge on those plays, the sooner the trader gets the news, makes sense out of news and puts a trade on, the more gain can be potentially made. 5 minutes can make huge difference on RR with those type of catalysts. In fact the timing is so important that creating / programming algo might not be bad idea for trader to use, algo that has specific news read ability of China / US related things or Twitter accounts. There are many algos doing exactly that already on SPY index.


My main directional play when it comes to current asymmetric conflict between US and China under fresh catalyst is:


-long USDCNH (short CNH, CNY) (risk flow play + capital outflows)

-long gold (risk flow play)

-short Alibaba (BABA) (exposure play)

-soft short / scalps Amazon (AMZN) (exposure play)

-soft long dollar against EM currencies (risk flow play)


Bellow is conceptual presentation of time decay on catalyst and potential impact on edge and traders approach (this is specific only to the catalysts presented bellow such as tariff announcements or sanctions):




Tariff announcement from August 1st and the trading approach used


Currency


The main focus was on USDCNH, simply for the reason that currency is the easiest asset to find the direction on when it comes to playing the tariffs. In big bearish catalyst market has to re-price currency on the risk side. Finding direction or the strenght of direction on other assets that are also impacted by tariffs could be more difficult compared to the currency. My main focus there was to short CNH / CNY by going long USDCNH on micro setups of accumulation patterns. This is up to each trader individually how he / she plans to approach it from micro, whether it is by using indicators, or using bounce entries or breakouts, as long as there is some edge on micro setup it is good enough. Finding the main macro direction is the key on such play, not the micro entry itself.



Alibaba (BABA)


Second asset played was BABA on short side. Since Alibaba is very exposed to tariffs it is second asset class to pick on tariff play after the currency. This can be traded by shorting stock or by buying options puts. This was not an easy trade since it dived straight down and it did not give any consolidations or distribution patterns to short into nor any major pop, which forces trader into chasing or not touching it at all. This is up to trader to justify if chasing is worth it, in my view, if move is not yet extended and trader catches news within first 5 minutes of release it is justifiable to jump with chase entry (this is only specific to big tariff announcement, not just any catalyst), since market has to re-price catalyst for another whole day or potentially over whole week.

Personally i like to play BABA because it serves as "index" of Chinese products to US, but if trader wants to be more specific then additional play could be picking only the specific Chinese stocks that trade on NASDAQ which will be hit by tariffs directly based on product they are selling.




Gold



Third asset great to trade on trade war is gold. There are some upsides and some down sides when it comes to using it as trading vehicle on trade war. It is highly leveraged giving trader high profit potential if right trades are placed, it gets a lot of media attention once it starts to break highs, using futures also gives a good adventage on tape and absorption setups (Ninjatrader has several great third party indicators for that).



Bellow is intraday chart of gold on August 1st.



Technically there is no right or wrong rule-book when it comes to picking entry on tariff play, basically as long as trader has the right macro direction any indicator or any trade is likely to work out on day one (after first day micros and edge start to matter more). This is due to nature of how strong the catalyst is and how fresh / shocking it is , basically on tariff announcements market is unable to chew that catalyst in advance (some hedge funds do, but not to big extent), giving strong directional play on the first day.


VIX (volatility index)


Fourth asset good to play on the tariff announcement is VIX. Great directional vehicle when things are escalating around the globe. Usually it trades correlated to gold on risk events, but it provides more % gain with less use of leverage which might be more appealing to some traders. It is not uncommon to see VIX move 50% on strong bearish catalysts.



Equity indexes



Bellow is example of short plays on China 50 stock index on May 5th after the initial threat from US president of increased tariffs to be announced. One of key concepts to take from this is that market will price actual threats from US officials strongly, even if they come from Twitter account and are not yet confirmed by US goverment / administration. Few days later once the tariffs were actually confirmed the reaction was much weaker on Chinese equities because market has already started to price in threat as likely to play out for real. That is often reaction around key events that are announced ahead by key goverment politicants, even if yet not confirmed by goverment as whole. Basically buy the rumor, sell the fact (or inverse for short side).



US SP500 equity index is another way to play the tariffs but personally it is my least favorite asset to trade the current conflict on, because the short-term impact on US markets from current situation is much more muted and equities thus do not respond in clear one sided directional trend, it is more choppier response. For this reason many traders like to use trend following methods to trade such catalysts and wait for index first to show initiation in the "right" direction before taking the trades. Avoiding shorting when there is short term bull trend established, and only shorting when there is clearer presence of bearish trend. Obviously all that is a lot clearer in hindsight, depending on how trader defines a trend in first place. Additionally with FED cutting rates the response of SPY on trade war is thus even more muted.





Use of stop loss


It is very important if trader has leveraged trade, that stop loss should be used on tariff play. If traders position is so big that 200 pips move could trigger margin call then a stop loss is a must to use. Simply for the fact that in case if news tend to not be true, or is rushed and is later delayed the market reaction in such case would be drastically opposite, with price giving 180 degree opposite move of initial reaction. This was for example the case on Mexican tariffs, where the US pulled away the initially announced tariffs. It is important for trader to be preapared for such event ahead, especially if market has already priced event in strongly.


USDMXN chart bellow on tariff announcement from May and withdrawal of tariffs some days after.



Under-priced catalyst


Tariff plays are excellent for trading, because unlike many other market catalyst or news, market for the most part cannot price them ahead. Majority of market participants do not understand that US and China have entered in long term cold war and thus every catalyst is being priced in as "surprise" , giving strong consistent direction over first few days. This gives strong wind behind the back of initial trend direction and allowing trader to follow the trend for a while. First day however is best to trade. Surprising catalyst or the catalysts where large players have to restructure (hedge funds, investment banks...) their positions are the best because they provide consistent direction because it takes a while for the process of to complete.


List of current trade-able catalysts since early 2019


https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/


Trade examples


Some trade examples from currency markets, longing clearouts (short CNH) , longing USDCNH along the risk on flows of emerging markets (Argentine) and longing heavy washes. All played along and based on main macro catalyst direction of tariffs.






Catalyst types



Current cold conflict between US and China will likely open many catalysts that can be traded in future, the current most frequent one are tariffs, but it does not end there. Additional catalysts that can be played with same approach as above described tariff play are also sanctions (US imposing sanctions on Chinese officials), military issues / events in South China sea, Oil embargo, goods embargo etc...Why is to expect such events to unfold in near future? Because one can look other examples of asymmetric conflicts and the measures that US goverment used such as Russia 2014-2016, Iran and many more historical examples of last 300 years used by other countries. This is not to get political because i have no personal ideological bias to either side, this is just to rationally expect what might happen in advance and how to preapare to trade such catalysts.


Potential catalysts to trade dirrectionally:

-tariffs

-sanctions

-embargo / ban (Huawei, ZTE, basically any major Chinese company operating over-seas...)

-military tensions (South China sea)

-proxy escalations in Hong Kong or Taiwan (either of two might be used as trap for CCCP)

-removal of Chinese companies from participation on US equity markets or debt markets across the board (full spectrum removal from Nasdaq and indexes)



Bellow is example of trade on Russian sanctions that were announced by US last year, this type of play could potentially also emerge on China / yuan in next months. This provided strong catalyst pushing the direction on currency for 2 weeks, giving plenty micro plays along the main trend. Personally one of my best trades since the start on RUB shorts.



Proxy escalation play


Bellow is example of additional catalyst that can be played in current conflict such as proxy escalation in Hong Kong on HK50 equity index or Hong Kong dollar (altough currency is pegged and harder to pick directionaly).

There were plenty shorting opportunities within the April, May and June when the protests started to increase in size and the impact on economy started to become significant (tourism, capital outflows, deportations, ...). This was especially easier to play dirrectionally long term because the size of protests just kept increasing and growing in size, pulling the equities behind.


The downside of trading such exotic index is that there is no access to quality Level 2 orderflow data which makes trader trade with one eye blind, decreasing the edge. This makes it good for swing trading but not for more accurate picking of rotations of price intra-day.




And bellow is current withdrawal of extradition bill and relief rally of Hong Kong equities, which could potentially release the pressure of protests for while giving short term long play on equity index. But keeping eye on size of protests in such case is more important than the actual policy implementation, since the protests are the main reason why equity index took a hit.




Hong Kong and Chinese markets are correlated and overall the trade war has impact on both markets, especially if situation in Hong Kong remains bearish, it lines up with overall direction of Chinese equity markets and their impact of trade war.


Similar play to current China / Hong Kong proxy situation was in 2014 with Russia / Ukraine using Ukraine currency and equity markets to play on short side along the proxy escalation on swing trades.




Removal of Chinese companies from US equity and debt markets





There is a realistic chance that this in fact might happen. If it does the implications for the most exposed Chinese listed tickers would be drastic. Especially the companies that receive large capital inflows from US on consistent basis and run deficits, those would potentially be hit the most. This can open large short play across large spectrum of NASDAQ listed assets, and there is chance that such "hint" would be first announced on Twitter account of US president. The reaction on tickers should be swift. Chinese companies are short of dollars in a larger sense and the petrodollar recycling is one of the key arteries that enables China to grow. With such measure taken, this would potentially push CNH currency drastically lower, lift inflation, force CCCP to open full foreign capital investing into Chinese companies to cover the shortfall. And as for tickers listed on major exchanges it would be potentially devastating. Such move would also reduce the inflow of dollars into China, creating large long term problem on Chinese debt markets, altough since those are very limited to trade it is non event for traders.

This could be played trough options by buying puts for easier play with no overnight carry fees, or shorting stocks directly if stock does not trade options (small caps).


List of current Chinese tickers on major US exchanges:

https://topforeignstocks.com/foreign-adrs-list/the-full-list-of-chinese-adrs/



For any trader it is best to get outside of box thinking that this is just a trade war, it is not. This is full scale attrition conflict, and there are likely to be catalysts and actions taken that go far above just trade.


The rug pull


One very important factor to keep eye on is Hong Kongs GATT trade agreement with US, which has recently been under pressure from Senate for potential re-evaluation and potential termination in case if China keeps pressuring Hong Kong. If such thing was to happen the implications on Hong Kong markets would be huge, opening tariffs and potentially huge capital outflows and potentially crashing real-estate market. From trading perspective it could open one of the largest macro trades in this or next year.

There is a decent probability that this might actually happen. Such a move could as well break the currency peg between HKD and USD, giving great shorting opportunity (long USDHKD).


Micro plays


Bellow is conceptual example of some micro plays that i use to play this conflict along the direction of main catalyst. Micros are used to time the entry well for best possible RR on trade. There are many different micros trader can use, they can also be helped by indicators, but personally my view is price / volume / tape over indicators.


One of my favuorite micro plays on fresh trade war catalyst is distribution on weakness. This can be played on asset that is negatively impacted from trade war, has strong drop and then later on forms distribution pattern on first day (for example Shanghai index or Alibaba). Example bellow:




Check-list for how / if to play it



Checklist if fresh catalyst should be played (going from high macro, to mid macro, to mid micro to lowest micro, all should align for higher edge from top to bottom):


1.Current conflict is still in escalation phase on economic / military / diplomatic levels

-Overall on long term scale is conflict producing new escalating events around all the areas.

2.Failure of previous de-escalation phases to deliver

-For example are phone talks failing to deliver, are diplomatic talks failing to deliver.

3.Catalyst is fresh and market had no chance to chew on it ahead

-In case of tariffs catalyst is fresh since US goverment has not specified ahead to which level tariffs will be applied over next few years, thus each hike is "surprise".

4.Catalyst is significant in size , relative to asset it impacts

-Size of tariffs for example in 300 billion goods is significant relative to Chinese equity index and the size of their exports.

5.Asset was not in over-extended direction along the catalyst direction ahead of it

-If asset is too overextended in the direction of catalyst the market might fade the catalyst sooner, because it might be priced in already to extent.

6.Asset has instant reaction on catalyst and follows one sided direction well

-If catalyst is surprising and strong, asset should respond instantly.

7.Micro setups line up on asset to time entry (price, volume, tape, indicator)

-Specific micro entries / patterns that trader is using for trade entry line up on asset


If any of above or 2 of them do not meet criteria the reaction of asset is more likely to be choppy.

The above example list applies only in playing on the risk-on side the assets shown above.


Catalyst announcement price level, should hold.



The most basic rule is when there is such a huge and surprising catalyst the price should never go under the price level where the catalyst was announced. This means that this should be traders last defense line for when to cut all the trades. It almost never happens under such catalysts, but in case if it does that should be last line where trader should cut all positions, if he / she is not using micros for entries and has more looser approach.

Those type of catalysts arent just some earnings reports that come 2% close to expectations, or central bank reserves update that comes 5% to the expectations of economists, those catalysts have huge shock factor and force the restructuring of macro positions and push the risk flows, which means that the news is much less likely to fade on price than majority of other catalyst.


Bellow example of catalyst in and the announcing price level that can be used as last line of cutting the trade on gold.


Trade war has so far given one of the best trading opportunities in 2018 and 2019, with trades that netted over 30 R on some examples in May . Historically based on how long usually the cold wars last chances are that there will be many more such opportunities in next years to come.


Risk off / on flows (fade news, or short term scalps)



Implications of current conflict are huge for markets, since the scale of trade war impacts so much on both sides of markets in US and China, any glimpse of positive news can quickly spark risk off flows. Generally market does not price in strategic plan of US goverment in current conflict, nor the long term plan of Chinese goverment that might be incompatible to US demands, simply markets on average operate on much more short term basis. That is why any potential positive news about de-escalation can quickly spark strong counter flows, even if the news is fluff and completly un-confirmed from official sources.

From trading this creates good opportunities in two ways:


1.Fade the news, long term

2.Scalp the news on new direction short term


For example if one operates with long term macro play on the conflict expecting further escalation then fading short term positive news could be good play for swing, or scalping against long term macro with current fresh news on day 1 could also be option.

In either case long term macro should fade short term bullish news (de-escalation) and short term bullish news can push back some of overall longer term trend direction.

This also very much depends on what asset it is played, for example US equities will be a lot more choppy over long term, while Chinese equities will be much more one directional and responsive (due to difference of who takes more impact) or currency where dollar takes a lot more choppier overall direction versus Chinese currency taking substential and consistent down trend direction overall.


So far until mid 2019 most of risk off news included phone talks and negotiations, and markets tend to react often very quickly on any positive sentiment for the reason that huge amount of negative sentiment is already baked into price over last 1 year.


Risk off flows example and potential trade on gold (main risk on / off asset):



My personal play was just to fade all the bullish catalysts since the early May (long gold, short CNH currency), simply due to structure of larger macro, but those positions are usually soft and small, because its hard to tell how much can the larger macro be faded counter trend before it starts to pick its macro course. But the data does not lie so far, all the bullish (trade talks, de-escalations etc) news has been faded every time so far, and there should be no surprise to that. But this is up to each individual trader to construct which way and how to actually play the ongoing situation.


Fading the short term de-escalation with longer term macro:




Above example is how trader can use de-escation news to buy on dips risk assets such as gold for example, or to short CNH currency on bullish pops of de-escalation news.




Amazon (AMZN)



One of the assets / companies that is very hidden from public discussion in regards to trade war is Amazon. If trade war escalates into huge tariffs over next few years or potential exclusion of Chinese products from US in broader sense of sanctions, this would lead to huge impact on stock of Amazon. Especially in last 2 years there was huge inflow of Chinese FBA sellers on Amazon, additionally to already dominated participation of Chinese products from US sellers on Amazons platform. The market has so far under-priced potential bearish impact over next years that trade war might have on AMZN, thus creating decent shorting opportunities on fresh catalysts such as increased tariffs of bans.


On August 23rd there was already proposition to block certain Chinese opiods from Amazon, and it is likely that as trade war escalates more products will be added to ban list, impacting the AMZN ticker / stock. Such catalyts are good shorting opportunities, since they are unexpected by most market participants and thus not priced in ahead.

It is expensive stock and perhaps better play is with options rather than shorting stock.





Personally my plays on AMZN are very short term based, in and out of trade within a day, for the reason that AMZN is huge and fast growing company and the trade war impacts might be more faded on this asset as compared to currency or gold for example.


Realistic expectations and approach





Trade war has so far given 5-7 solid opportunities in 2019 for intra-day setups and aprox 20 swing opportunities overall. It is very important that trader has realistic approach on how many opportunities it is to expect and what sort of trading approach is needed to execute them. If one is to trade every day for example FX on CNH short, thinking that just because the trade war has started and that every short setup on Chinese yuan will work out, that is just very dangerous view to have. That is why i outlined that timing the catalyst with correct micro approach is needed which also requires a full time trader, for the rest only swing approach can be used, but with swing trades the RR is also much lower as is the accuracy.


This is just quick overview on which assets can be used to trade the current conflict and which direction to use along with some entry ideas, but overall this is just sum-up and it requires a lot more digging, research (history, catalysts, etc...) and overall some solid trading plan to execute on intra-day basis for each trader.



Laying the path ahead


For any aspiring macro trader studying this themes is a good starting point to structure a path for current cold war ahead:


-US / Soviet union cold war (in depth)


-liquidity crises triggered by asset bubbles (Japan 80s, US 2008, Argentine 19th century..)


-studying the people behind current US administration (Bannon, Bass, Kissinger, Pence..)


-Major cold wars between deficit super-powers over last 2500 years and the strategies used by aggressor, usually similar strategies are recycled and used


-China one belt one road initiative


-Study of asset bubbles in China


-structure of petrodollar flows within China, FX currency reserves, and studying the historical examples of countries where FX reserves started to change the course into consumption (after initial accumulation) and the impact on inflation / currency


-study historical examples of countries that run twin deficits and what happened after capital inflows shifted into outflows, especially emerging markets


-all the weaknesses and links that China has to US and that US has to China and which country can afford to break each of those links with taking less damage as the counterpart. Details matter, both sides take damage from every move, but from market performance side the details matter not just the concept. (natural resources, food such as pork, investment flows into securities or real estate, oil dependency and the supply chains, short term debt interest, leverage of trade / export companies and their balance sheets, ....)


-Current exposures of supply chains / links that China has across the South America, Africa and Asia in terms of food / natural resources / raw materials / cheap financing. All those are likely to be targeted either with sanctions on proxy countries, sabotages, and especially the secondary markets which can provide the alternative source which might be heavily bullishly exposed to such events, those are all potential great trading targets as long as the market is liquid enough, or if it impacts certain indexes that can be traded.


There is a lot more to list, but those are good starting points. It is very important to study / track everything about current conflict from as much as possible neutral perspective (even as US or Chinese resident), because only that way trader can build realistic and objective path and plan for possible macro trades. People who process information trough ideological lens tend to come with biased and wrong conclusions, something to keep in mind. Traders job is not to position him / herself on morally right side, rather it is simply to find out who the strongest player is in each situation and how this can potentially impact trading ticker / asset. This is a lot of work and a lot of study, especially for those unfamiliar with those concepts, is it worth it from trading perspective? In my view 100% yes, because this has and it will open large macro trades upon which trader can keep executing positions and plays in next several years. There is a lot of meat on the bone, sort to speak. Biggest and the most consistent trends in markets come where status quo is kept for a long time and then all of sudden there is 180 degree turn. Economy gets addicted to consistent growth and "all is green" scenario, and once the switch is flipped this usually creates the "elevator down" move on market, which is what is likely to be the case for China.





Large macro play




There are significant weaknesses that Chinese economy has internally, which in near future might open large cascading event. Liquidity power of PBOC and the will of CCCP to prevent any major players (banks, funds, trade companies, insurance companies...) downfall are not to be under-estimated, there is a lot that China can do internally to prevent major crisis if current cold war keeps escalating with pressure. However there is large external system that China is linked trough the globalization and trade participation which China internally cannot control. This is the flow of dollars in and out, based on investment flows, selling of goods on international markets, primary investments, technology edge which are all dollar long, and on the other hand the consumption of raw materials, investments abroad into real estate, and imports of strategic resources such as oil, which are all dollar short. The imbalance over next years will drastically shift towards dollar short side in China, and there is nothing that China can do to control this internally, which can result either in liquidation event if major players inside China are let go (unlikely) or the other scenario which is highly inflationary scenario and the currency is sacrificed in order to prevent liquidity problems (more likely). The history is guide on this one which is more likely to happen. This potentially opens very long term bearish macro, that can be played trough currency and bond markets.

55 trillion of bank asset mostly on liability side, relative to the size of GDP of Chinese economy is one of the major weaknesses, especially with the leverage used. There are many publications with different statements of how many of those loans are bad with numbers ranging from 20-70%, in the end it really does not matter that much as the size and speed of growth in last years relative to growth of M0 money supply and the bank liability assets is enough to pose significant weakness for China. No matter which outcome the CCCP and Chinese goverment picks, the end result that is baked into cake is inflation. Play on the currency. With the size of economy and the risk to financial side the alternative pick is also to be played trough gold, especially because the residents might want to hedge it with physical gold inside China. Short CNH, long gold.





Personal view



This is only my personal view, which is different from the pages of article above as it is no longer just stating the facts, it has subjective filter to it. Personally i have spent decent amount of research and time on this cold war conflict since 2014, and based on all the conclusions my view for the conflict to progress in next years is such:

(not in chronological order necessary)


-full tariff imposition within next 2 years, escalating tariffs from current 25% to maximum possible effect on 90% of Chinese products coming into US (certain products likely to be excluded that are not possible to shift of supply chains from China). This will affect hugely Chinese equity markets and put short term pressure on US equity index on each announcement if FED does not offset it enough by rate cuts. It will likely trigger liquidation event of all the low % margin manufacturing companies in China, possibly in the numbers of thousands.


-complete exclusion of US investors to participate in Chinese equity markets, either on Nasdaq or direct investments into China within next 1 year


-Ban of US / EU investment banks to buy up Chinese debt within 2 years (same move as it was taken on Russia recently)


-Military budget and recruitment escalation into navy and airforce by initiation of US and followed by China, putting deficit strain on both countries (more spending) but if dollar inflows are cut into China potentially that player would take larger inflationary damage

(next 3 years), large escalations in South China sea.


-pressure on food exporters that export a lot into China in terms of sanctions, sabotage and potentially supply chain shifts , increasing the price of goods in China putting inflationary pressure.


-further integration of supply chains between Russia, Iran and China in terms of energy, food, natural resources and military pacts. All above putting further escalating pressure of sanctions on those countries from US. (next 5 years)


-de-linking of main tech and chip producing companies away from China as a part of full G5 technology blockade (US and potentially also EU)


-ban of all major Chinese overseas companies from global markets and deals (Huawei, ZTC...), instant impact on equities of such companies


-Sanctions on capital and holdings (real estate and such) on all major CCCP members outside of China (Canada, US), putting pressure on currency and capital outflows into more riskier EM countries (in next 1 year)


-large scale liquidity provisions from PBOC and potentially biggest QE that financial world has seen since 1932 crisis. Potential lift on Chinese equities, debt markets but putting long term pressure on currency.


-imposition of capital controls on Hong Kong by CCCP in order to prevent further capital outflows (in next 2 years)


-huge decrease of FX reserves of US dollar in China, and major international faith loss into CNH to be "next reserve currency". Based on the petrodollar year to year flows the currency reserves of China are not as big as they sound, eventually covering only 3 years of full cover for shortfall (2 trillion USD reserves).


-Large drop of equity and real estate markets of Hong Kong over next few years, as HK is used as scape goat for US administration to cut China from global capital markets.


-Bearish market escalation of Taiwan markets as well, correlated play to HK. Militarization of Taiwan in large scale, putting pressure on countries budget and inflation. Bearish for markets of country.


-Huge increase in gains of all small scale-low cost manufacturing producers in developed countries that will gain from the US / China trade war and shift of supply chains over next 5 years. Manufacturing equity index to outperform many other indexes of US economy potentially. This applying especially to Amazon sellers, dropshippers and local smaller businesses. Potential looser on the opposite side of this is likely to be Alibaba.


-Chain targeted approach to top-down pyramid for Chinese listed Companies in US markets, or Chinese companies that attract capital from US. Starting with ZTE, China Unicom, China Mobile, Aviation Industry corporation, those companies have many proxies in NYSE and OTC markets and are likely to be targeted, triggering chain events of further bearish pressure on the rest of Chinese listed companies. The bill is likely to pass within mid-late 2019 and is likely to trigger de-listing chain events for Chinese tickers. All the named tickers above cannot disclose the full transparency of balance sheet due to certain state secrets / advantages of China and is likely to use as a scape goat to trigger the bill to pass.


-US goverment officials and employees to be fully prohibited in investments into Chinese equities, markets or any US related proxies by end of 2019. Several institutes that are pushing for such thing to pass, backed by history of previously similar executed actions from past 45 years.


-Equatable act likely to pass in Senate / Congress within several months from here. Very important as it dictates the potential speed of timing of other catalysts to follow in regards to financial exclusion of China / US.


Again to say, above are my personal rehashed views of the situation and may or may not turn out true, but each of those is a solid potential play especially on equity side of emerging markets and up to extent US equities.



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