Trade War Won't Knock China Off Course to Superpower Status

While the US pulls back from international trade relationships and focuses on protecting domestic industries, China has been spreading its influence

Emma Wall 13 November, 2018 | 9:17AM

Chinese President Xi Jinping China Asian equities Asia stock market belt and road

The US trade war will have little impact on China over the long term, as the nation usurps America as the global superpower, according to one asset manager.

While the US is intent on pulling back from international trade relationships and focusing on protecting domestic industries, China has been spreading its influence across Asia and Africa. Robert Horrocks, chief investment officer of Matthews Asia says far from shaking in their boots at Donald Trump’s tweets, China is actually driving future of international trade.

“A $250 billion trade tariff from the US won’t make a difference to China – this is a $1 trillion economy,” he said speaking in Hong Kong last week.

“What China is doing internally and across Asia is pulling hundreds of millions of people into the global trade system with China at the centre. Freight trains to London, building ports in Sri Lanka. China is improving lives across Asia and Africa. China is reaching out across the world while the US is shutting down.”

On a six-year outlook, Horrocks predicts that Asia will make up 58% of global economic growth. Historically it has been almost impossible to grow faster than the US economy, but Asia has managed it thanks to investment, reform and innovation.

Horrocks adds that in the past, the US’ contentious attitude towards China was based on an allegiance with Japan, but Japan and China are now making friends, threatening the US’ dominance. Chinese President Xi Jinping hosted Japanese Prime Minister Shinzo Abe last month – the first visit of a Japanese leader to China since 2011. Abe spoke of cooperation and a partnership during his visit, a significant advancement in inter-country relations.

“China has a high savings rate, is undergoing corporate reform, and driving up both wage growth and productivity,” enthuses Horrocks. “The US is not offering international investors the same opportunities. Today’s tariffs are not a significant part of how global trade will develop over the next 10 years.”

Asia Stocks Struggling

Despite these positive tailwinds, Asia stocks have performed badly this year. Trade tariffs have plagued certain sectors – including autos. But Horrocks says the market slump is more about sentiment than real economic issues.

Instead, the Federal Reserve’s interest rate policy and the subsequent movement of the US S&P 500 pose the real risk to Asian equities.

“The S&P falling always creates headwinds for markets across the world,” says Horrocks. “Asia has already significantly sold off – Indonesia, China, India and Japan are down. Asia will fall more than the US market does over the short term, but looking longer term there will be shift in who leads the recovery.”

He adds: “The growth potential in Asian stocks is the greatest in the world, but stocks are the cheapest globally.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Matthews Asia Funds Asia Dividend I USD18.10 USD0.91

About Author

Emma Wall

Emma Wall  is Senior International Editor for Morningstar

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