The Impact of U.S. China Tensions on the Financial Market

The international financial market becomes influenced by many factors, including the relationship between countries. What does the tension between America and China mean, and what are the possible consequences of this tension?

As Ozan Ozkural Mentioned, a managing partner at Tanto Capital Management, emerging-market assets are sensitive to the shrinking U.S. reserve system and growing geopolitical tensions between the U.S. and China.

When Did it Start, and How Far did the Conflict Go?

Diplomatic and trade relations between the U.S. and China have deteriorated since officials met in Tianjin last month. Treasury revenues rose sharply on Monday as federal officials shared a possible need for a slowdown in central bank purchases of assets, while discussions are underway about a potential rise in interest rates.

In 2013, the Federal Reserve said it would reduce the economic stimulus of the Great Recession by slowing the pace of Treasury bond purchases. Investor panic led to the sale of bonds and increased treasury revenues. This hit emerging-market asset that is typically riskier than their developed counterparts. Emerging markets are experiencing significant capital outflows and currency depreciation.

As Ozkural points out, many fiscal stimulus programs need to be discontinued. Central banks are debating whether this is possible and when to raise interest rates amid rising inflation. As Ozan suggests, investors will have to revalue their risks. He thinks that there will still be a “revenue hunt” if another reduced blow is dealt.

However, he advised investors to become more selective about geographies in the context of the “expected and growing geopolitical battle” between the United States and China. China is no longer just a cheap producer. Now it is a consumer country. As long as the U.S. can fight China effectively, Europe will find it difficult,” he added.

Making preliminary predictions in general international terms is quite difficult at this stage. However, they are already seeking alternatives. Experts believe that tensions between the two countries could be detrimental to many investors.