China and the U.S. are back in the headlines — but are investors paying sufficient attention to the risks of a geopolitical clash? Indeed, caustic rhetoric between the No. 1 and 2 economies in the world is intensifying — again.
It may feel as if the animus between the global superpowers couldn’t come at a more inopportune time: in the middle of a pandemic, which notably was first identified in Wuhan, China in December, and has infected more than 5 million people around the world, according to data aggregated by Johns Hopkins University.
As MarketWatch’s sister publication Barron’s writes, the Sino-American issues are many and include actions taken by the U.S. to censure China’s new security rules that threaten Hong Kong’s semiautonomous status, restrictions against Huawei Technologies, a push to increase scrutiny of Chinese companies listed in the U.S., funding for the World Health Organization, and accountability for the handling of the viral outbreak that has likely ushered in one of the most severe global recessions in the past 100 years.
“The list is long as my arm,” said Ian Bremmer, Eurasia Group’s founder and president, of the Sino-American tensions, during a Friday interview on CNBC.
“It’s never a good thing that the two largest economies in the world are battling,” Peter Boockvar, chief investment officer of Bleakley Advisory Group, told on Friday.
Tensions between the countries, however, don’t seem to have supplanted the intense investor focus on reopening the economy in the U.S., and elsewhere in the world, or attention on a cure for the COVID-19 pandemic, which have helped to buoy risk assets.
“I think the market likely sees the upside risk related to finding a vaccine or treatment as near-term, and the downside risk related to China as long-term, so they are focusing more on the near-term right now,” Lindsey Bell, chief investment strategist with Ally Invest, told on Friday.
On Friday, the Dow Jones Industrial Average, DJIA, -0.03% the S&P 500 index SPX, +0.23%, the Nasdaq Composite Index COMP, +0.42% logged lackluster moves, even as the indexes all notched weekly gains of more than 3%.
The small-capitalization Russell 2000 index RUT, surged 7.6% for the week, suggesting that investors were scooping up smaller-cap companies, more sensitive to economic vagaries, just in case efforts to restart businesses proved successful.
‘The economic recovery is still very fragile and any larger repercussions between the U.S. and China could put a halt to the equity rally quite quickly.’
The overall action in U.S. stocks has tilted higher since the indexes put in March 23 lows but has become more cautious as catalysts to take stocks substantially in either direction for a sustained period have failed to materialize. ♦
