Global market plunge after Trump vows China tariff hike. Many investors may want to know what happened in the weekend, especially mainland China investors. However, we believe investors familiar with our research have read may analysis about trade war. For now, the first question for investors is how to face increasing volatility and risk premium.
To early to make a decision about the talk
Trump says will raise US tariffs on 200 billion Chinese goods in Friday this week. China do not official respond the change. In this week, China vice premier schedule to Washington. We still believe both countries try to end the trade war until further information release.
Strategies under increasing volatility
For short term, investors should rebalance portfolio by hedging or increase money market holdings to decrease portfolio volatility. After a strong rebound year to date, investors should think about profit taking.
For strategy allocation, investors should control the portfolio risk by the correlation of stock and bond, risk-on asset and risk-off asset. We believe treasury and gold can offer diversification for long term portfolio construction.
Last but not the least, we believe Chinese government will stable economy by different instruments, such as RRR cut. China central bank gives modest boost to economy with RRR cut amid renewed trade tensions today. With the help of liquidity injection by government, we believe credit events will be controlled in China. As result, investors can buy in dip, when US dollar dominate Chinese bond retreat.