From the military to technology, from the economy to political influence, the rivalry between the US and China is intensifying in just about every realm of human existence. To many economists around the world, January 2020 seemed like a different era rather than just a few months ago. Earlier this year, US President Donald Trump addressed the public at the World Economic Forum in Davos and hailed America’s relationship with China, describing it to be the best it has ever been.

Fast forward four months, this relationship turned sour. Now that the COVID-19 has entered the US, the Trump administration is under major scrutiny for not being well-equipped to handle this pandemic. Trump changed his tone, from praise to accusing the Chinese of being responsible for this global pandemic. Thus, this has taken tensions to a new extreme. This can also be seen in the presidential campaigns in the US as pro-Trump supporters have put out adverts attacking China and linking it to his opponent Joe Biden – the message being ‘Stop China Stop Biden’.

China is not holding back either. Hua Chunying, the director of the Foreign Ministry Information Department of China, fired back at the US government in a press conference, retaliating to the politics that Trump is administering of blaming the origin of this virus. It has been reported that some Chinese diplomats have accused the US of bringing the virus while they were in China taking part in the military games which took place where it all started, Wuhan.

In the past two decades, history has taught us that the balance of power of both countries was shifting in opposite directions – China’s was strengthening while the US’s was diminishing.

It is a proven fact that the former country’s boost in its economy helped the world to get back on its feet after the fall of Lehman Brothers and the world’s financial crisis. Within five years after the 2008 global financial recession, China had more than doubled its holdings in the US Treasuries. Back then, America needed to borrow massive amounts of money just to stay afloat. China became the biggest foreign lender to the US at well over one trillion dollars.

A number of economists believe that a new cold war can strike between the two countries. However, there will be some differences – the ongoing business that is done between Russia and the US and China’s global dominance of helping other countries develop their infrastructure, economy and the degree of economic interconnectedness between China and the US. This can also be seen by the 70,000 US companies established in China which help the Chinese economy generate an income of approximately $700 billion a year. Apple Inc. is another perfect example, having its head office in the US and having its components made from China. China is also the company’s second largest market after the US.

Recently, Trump said that the relationship with China can be terminated completely, saving the $500 billion. We could actually see this being Trump’s new presidential campaign. With the amount of money being mentioned, he can easily address the situation as a way to improve America by using the funds to rebuild the US economy post-COVID-19 and make America great again.

The EU is being dragged along

With this saga being prolonged, the EU is being dragged along. The EU’s economy has been more interlinked with China than that of the US. The level of economic involvement from Germany’s exports to China alone is more than the UK, France, Italy, Spain and the Netherlands combined. In a summit, the EU tried to level the playing field for European companies that operate in China but this pandemic has taken over its priority.

To the world, one can view this geopolitical spat on conspiracy theories as being a blame game played by two bitter sides. In my opinion, the EU prioritises free trade rather than burning bridges. My view is that the EU together with other countries must make a choice – should business interests come first or should the bloc’s values reign supreme?

I think the EU needs to find a way to either accommodate both countries or none of them. In my opinion, the EU should collaborate with like-minded countries of parallel clout in the international system to have support financially and diplomatically with the essential institutional mechanisms of the system of global governance, while the top two economic countries continue to rampage and lock horns with their never-ending trade deal.

It is true that we are not living in the best times for investing – a summer cocktail mixed with Brexit’s trade deal, China versus the US and the pandemic. Furthermore, the recent performance in oil, a phenomenon of price levels reaching below $0, continued to hammer the economy. However, it does not mean that one should stop investing. High-risk takers are itching to get hold of stocks which are now at low level prices, while non-risk takers are investing soundly in safe-haven assets or capital-guaranteed products.

But how should one invest? It comes down to those previous written articles explaining the concept of drip-feeding in the market and other strategies that can be adopted depending on the risk appetite of the individual.

Also, keep in mind that an important factor is to have a good relationship and keep constant communication with your financial adviser in order to take advantage of this current market environment and keep abreast of any market developments.

This article was prepared by Matthew Miceli Donnelly, investment advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The company is licensed to conduct investment services by the MFSA and is a member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For more information, contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on 2122 4410 or e-mail matthew.micelidonnelly@jesmondmizzi.com.

www.jesmondmizzi.com

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