U.S.-China Tensions Escalate – EM Market Signal Turns Negative
Our emerging markets signal turned negative as EEM lost 3.67% today.
China has responded to the Trump Administration’s latest announcement of plans to soon impose 10% tariffs on a wider list of Chinese exports by allowing its currency to fall through a key psychological barrier.
This confirms a clear trend and its intent to offset higher tariffs with a weaker currency making its exports more competitive in global markets.
In addition, rather than increase purchases of U.S. agricultural products, China is seemingly going the other way by decreasing or even halting the purchase of U.S. agricultural products by some of its large state-owned firms.
All of this is rattling markets and making the pathway forward more uncertain.
While our portfolio is already in a defensive posture with a 50% cash position, I think it is prudent to take the following changes to the portfolio:
1) Add a 10% position in EUM which moves opposite the MSCI Emerging Market index (EEM).
2) Sell positions in NIO (NIO) and Van Eck Rare Earths/Strategic Metals (REMX).
3) Move ZTO Express (ZTO), LexinFintech (LX) and Largo Resources (LGORF) from Buy a Half to Hold a Half.