By Joyce Yu
Philadelphia, PA–The dollar extended its losses following President Trump’s criticism of Fed’s rate policy, prompting fears that the on-going trade war may lead to a currency war. Treasury Secretary Steve Mnuchin, however, tried to ease the concern by telling reporters that investors should not fear the prospect of a currency war.
On the sidelines of a G-20 finance ministers meeting over the weekend, he said to the media that his office was reviewing the recent weakness in the yuan as part of its semi-annual report on currency manipulation. In responding to Yuan’s weakness of late China’s Foreign Ministry spokesman, Geng Shuang, rebutted the accusation of currency manipulation, saying China has “no intention to use means like the competitive devaluation of its currency to stimulate exports” but would not be influenced by “threats and intimidation” on trade.
Despite growing trade tensions between global economic powers, investors have been hoping this is just negotiation tactic that will be watered down during negotiations. During the G-20 meeting, finance ministers and central bank governors warned that growth, while still strong, was becoming less synchronized and downside risks over the short- and medium-term had increased. “Rising financial vulnerabilities and heightened trade and geopolitical tensions” were listed as top risks among others in the joint communique.
Such a non-binding communique, however, is not expected to be of much help in resolving the on-going trade row. President Trump said recently he is “ready to go to 500”, referring to the $505.5 billion in goods from China the U.S. imported in 2017. Overnight, China’s Commerce Ministry said it has launched an anti-dumping probe into imports of stainless steel billet and hot-rolled stainless steel sheet and plate from the European Union, Japan, South Korea and Indonesia.
Against the backdrop of rising tariff, some investors have pumped their money into smaller companies, hoping these domestic companies might be insulated from trade war fallout, and benefitted the most from President Donald Trump’s massive tax reform package. Mayflower Advisors’ Larry Glazer, however, is doubtful of this plan. In an interview with CNBC, he expected trade war will likely dissipate before the midterm elections, sparking a sudden, “massive rotation” in the market and hurting many investors. “The only people who want a trade war less than the American voters are the American politicians going into mid-term elections,” he said.
Managing about $3 billion of assets, Glazer insisted to go big, which remain to be the biggest beneficiaries this year. He favors large cap multinational companies, emerging markets such as Mexico and Canada and financials. “The long-term story in a war is buy on the sound of cannons, and you sell on the sound of trumpets. Well, we have cannons. You know there is a trade war going on. So, now is the time for investors to recognize that valuations trump all else,” Glazer said.
