The effect of Biden’s Chinese investing bans

There are so many 2nd and 3rd derivative effects from this news.

The headline screams nationalism, protectionism and death to globalisation.

Then there is worthy speculation about trade wars, military tension, broader protest by Chinese manufacturers to curtail supply to American companies and currency manipulation to occupy my time.

n.b. the Chinese Yuan is at a 3 year high versus the USD.

Albeit I understand the security concerns behind this decision but the card has been badly played.

Biden’s strategy is to win votes and maintain control of both houses at the November 2022 mid-term elections, when all 435 seats in the United States House of Representatives and 34 of the 100 seats (14 Democrats and 20 Republicans) in the United States Senate will be contested

He will do that by spending big (enriching or impressing the populous) and being tough on China. Both things Obama never did.

Biden won’t forget that in the middle of Obama’s first term, the Republicans ended unified Democratic control of Congress by winning a majority in the House of Representatives.

My mind tells me that opportunity will lie in declining Chinese stocks (it’s always interesting when there is forced selling), a rising U.S. Dollar (this will impact commodity prices) and rising U.S. interest rates.

China can weaken their currency and sell a bucket load of U.S. Treasuries. They are the largest foreign owner of U.S. debt. This will send yields higher which increases U.S. government borrowing (it’s interest bill) costs and triggers other inflationary risks (? short Manhattan property again ? )

Interestingly, the Australian Financial Review said, “Australia has not developed a similar list of Chinese companies that Australians are not permitted to invest in personally or through a company.”

Can you imagine that ? ….a government telling me if I am allowed to own shares in a company which is traded on a public market where I’ve previously been permitted to trade shares.

June 4, 2021

by Rob Zdravevski

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