Market Review - August 2019

September 4, 2019

By Jan Faure

Global equity markets were on a roller-coaster ride in August as the US-China trade war intensified with rounds of tit-for-tat tariff escalations. Increasingly harsh rhetoric on both sides has heightened concerns over the global economic outlook and fuelled fears of a possible US recession.

It doesn’t get much worse than “US companies are hereby ordered to immediately start looking for alternatives to China.” This was President Trump after China responded with new tariffs following the latest round of US tariffs. It does get very confusing tracking the back and forth escalations, retaliations and threats between the two countries. Markets are left to decipher official government statements, unofficial statements, media reports, twitter posts and all kinds of rumours. This led to an extremely volatile month for markets.

To summarise, in early August the US announced fresh tariffs of 10% on $300 billion worth of Chinese goods that will come into effect in September and December. Beijing then retaliated, announcing its own higher import tariffs and the suspension of US agricultural product imports. That triggered a reaction from Trump, who tweeted that existing 25% tariffs on $250 billion of imports from China would rise to 30% on Oct. 1 (uncoincidentally the 70th anniversary date of the founding of the People’s Republic of China).

So, where do we stand? The US and China are the world’s two biggest economies so a de-escalation is in everyone’s interest. It has become clear that the trade war is hurting both countries’ economies. Neither will emerge unscathed. At the same time, neither want to give in to the other. One strategic advantage that China has is it can wait out Trump’s presidency. If a Democrat wins in 2020, he or she will likely maintain a hard line on China, but probably ease trade tensions somewhat.

Talks are supposedly scheduled for September in Washington. For the US, the crux of the dispute is intellectual property protection for foreign companies that establish businesses in China, as well as forced technology transfers to Chinese companies. What the US really needs is the unified support of other affected countries such as Japan and the European bloc.

The trade war and other risks (Brexit, Iran, Italian politics, Hong Kong protests) have led central banks to lower interest rates and investors to invest in safe haven debt. It is estimated that about $15 trillion worth of global debt is now offering negative yields.

Global equity markets were mostly lower in August while bonds and listed property benefitted from lower interest rate expectations.

GLOBAL INDICATORS: Local reporting currencies

Source: Bloomberg,, S&P Dow Jones Indices

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