China Sends Message to Trump Through Stock Market
By: Lance Ng
Tags: China, Stock Market, Politics, China Us Trade War, Trump

China Sends Message to Trump Through Stock Market

The Chinese government is encouraging a bull run. Many will make money; but there is probably another agenda.

What are the ingredients needed to dominate the world? The biggest economy, a powerful military, and financial markets that control global capital.

China knows this. And it is working hard to overtake the US in all three.

The US knows this, and Trump has been playing hardball to prevent it from happening.

Moving the war from main street to Wall Street

We are all familiar with the phrase “Make America Great Again”. It was Trump’s campaign slogan during the 2016 presidential elections.

After he was elected, he sought to make that happen by blaming China for trade imbalances and ‘stealing’ American jobs.

That led to more than two years of a bilateral trade war, which finally resulted in China signing a deal in January 2020 to buy US goods and services and crack down on objectionable practices.

Unfortunately COVID-19 interrupted the victory dance for Trump. By June the American public was focused on how badly he had handled the pandemic in the US.

So he started the blame game again with China. But this time he couldn’t target bilateral trade, for fear of scuttling his own legacy deal.

So he decided to target financial services instead, and attempted to delist Chinese companies from the US stock market en masse.

What did China do in response? It has decided to encourage a bull market.

China strikes back with “Hahahahaha! The bull market is clearly here.”

That’s the name of an article released on Shanghai Securities News, an official site for information dissemination designated by the China Securities Regulatory Commission (CSRC). The article said that multiple signs clearly signaled the arrival of a bull market.

On the same day, another article was released on the China Securities Journal’s website, another official publication sanctioned by the CSRC.

This article’s title read, “Cultivating a ‘Healthy Bull’ in the A Shares Market is Important for Developing a New Opportunity and Playing Field”.

The article talks about how the local capital market will play an important role in the development of China’s economy post-COVID. It proposes a “new opportunity, new setting, new stock market” thesis, trumpeting the economic reforms and regulatory foundations that have led to the current potential for a healthy and sustainable bull market in China.

On that same day, the Shanghai stock market soared nearly 6%, and added another 2% early next morning.

Creating your own bubble?

Is China risking the creation of a stock market bubble? Articles from Bloomberg and Financial Times warned of the dangers of repeating a boom/bust cycle seen in 2015, the last time the Chinese government tried to talk up the market.

But this time it is different.

Chinese companies listed in the US are facing the threat of systematic discrimination and even delisting.

What was the Chinese government expected to do? Go groveling to Trump and beg for forgiveness?

China is no longer just the world’s factory. It now has the will and the means to grow on its own steam. Clearly it intends to internationalize its capital markets and attract global capital faster than before, to top off the already great dish it is cooking for global domination.

Up yours is what it is saying to Trump. Chinese companies can always come back home and list since local stock markets are flourishing.

Will the rest of the world bite?

Patriotism will factor in the reaction of the private investment sector to China’s beckoning. But I suspect profits will be a far stronger motivation. This open talk of a sustainable bull market is clearly an invitation to a ‘free ride’.

In April 2020 China scrapped foreign ownership caps in fund management firms. Since then foreign companies big and small — including many American firms — have set up shop in China to manage and invest funds into local securities. Morgan Stanley, Goldman Sachs, JPMorgan, Invesco, BlackRock, Fidelity, Schroders…. the list is long.

It’s simple.

China has higher interest rates than most developed economies. With major developed economies at near zero, fund managers are desperate for yield and are looking to China.

China was first in, first out of the COVID-19 pandemic. With about 85k in total cases and little new infections at the time of writing, this number now looks very small compared to figures coming out of many other countries still.

The Chinese central government has given the green light to its citizens — put your money into the stock market and feed the bull.

Will foreign fund managers give up the chance to make big returns just cause Trump attempts to pick a fight with China in the lead up to the 2020 US presidential election?

I doubt it.