When Will This Market Craziness End?

Have you seen the movie Crazy Rich Asians yet? If not, then you really should.

I recommend it highly. But don’t forget to bring a hankie. I would be very surprised if you don’t shed a tear, especially towards the end of the movie.

There are so many takeaways from the film. Lots of plots and sub-plots. There’s something for everyone. But I’m not going to spoil it for you.

Two-way pull

For me, it was the two-way pull on the film’s leading man, Nick Young, that made me think.

On the one hand, there was his love for his girlfriend, Rachel Chu. On the other side, there was his duty to the family business and his devotion to his mother, Eleanor.

You are probably wondering what any of this has to do with investing? And can’t David even watch a romcom without thinking about the stock market?

Highs and lows

The link with the stock market, to me, is obvious. For some time now, global markets have been subjected to a two-way pull – a bit like the opposing forces on Nick Young.

Some investors are worried about the trade war between China and the US, faster-than-expected interest rate hikes in US, American stock markets reaching all-time highs, and flashbacks of the stock market collapses ten, 20 and 30 years ago ….

…. It seems that stock markets crash with apparent regularity every decade….

….. and that has prompted some investors to cut and run now.

So, some worried investors are pulling their money out of shares. It’s been so severe that the Shanghai and Hong Kong markets have fallen significantly from their peaks.

Take flight

Emerging market currencies and even some developed market currencies have been pummelled too. It has driven the Indonesian rupiah and the Indian rupee to fresh lows against the US dollar.

Other currencies have not been spared.

But some investors are seeing opportunities in the turmoil. They point to the stock-market’s low valuations. They also say that global economies are still growing, albeit a bit less synchronised and a bit slower because of the US tariffs.

What impact?

But here’s the thing: the tariffs are unlikely to have much impact on the economies of China or America. Neither country is really that heavily dependent on exports to each other to drive their own economic growth. It’s nice to have but not imperative.

China, we must remember, needs to rebalance its economy, anyway. It doesn’t want to be the sweat shop of the world anymore. It doesn’t want to make our t-shirts and jeans and trainers forever.

So, the Trump tariffs have given it a convenient excuse to blame someone else for the fallout in the labour market as its economy shifts from being export-led to one that will eventually be driven by consumers.

No wonder the Chinese are in no hurry to negotiate. China has played Trump like a fiddle. Trump has done the Middle Kingdom a massive favour.

Who wins?

In any case, China can always find new markets for its exports. So too can the US.

Additionally, Chinese manufacturers can easily sidestep US tariffs by shifting their production lines somewhere else, if they need to. Vietnam, Thailand and the Philippines could benefit.

There is something else to bear in mind, exports between the two countries are not about to fall off a cliff….

…. they might be reduced. But probably not enough to impact the economies of either country beyond a small rounding error. Bilateral trade between China and the US accounts for only around 3% of total world exports.

All things must pass

The craziness over the trade war will pass once the market realises that no real damage has been done to global trade. Until then, markets could be volatile.

But remember, volatility is caused by those who don’t know what they are doing.

Provided we know what and why we are buying, we should have nothing to worry about. So, take advantage of the volatility. It is an opportunity, not a threat to the long-term investor.

A version of this article first appeared in Take Stock Singapore.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.