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FINSIA speaker calls for cool heads in China-US trade war

by Lewis Panther SA FIN | 05 Feb 2019
A veteran investor due to share his thoughts on the Chinese economy with FINSIA members has spoken of his optimism for 2019. 500 FINSIA speaker calls for cool heads in China-US trade war - InFinance

Keywise Capital founder Fang Zheng is confident the Sino-US trade war will be resolved before it is ratcheted up another notch with additional tariffs next month.

But the hedge fund manager - who really does bring a wealth of experience to our next round tables in Melbourne and Sydney with US$2bn AUM - says the political rhetoric needs to give way to cool business heads.

Speaking ahead of the events later this month from the US, where he spent a decade at the beginning of his career as an analyst at Rockefeller & Co and then at JP Morgan as a portfolio manager, Zheng said: “We need to put this trade conflict behind us.

“We need to see global trade increasing to stimulate business activity. 

“If China and the US traded more, the result would be a need for more resources and products from places like Australia and New Zealand. 

“We are in a global economic system and any policies or trade wars that hurt free trade will hurt everybody. That’s the message I want to carry. That’s the bottom line.

“I believe both the China and the US - and of course Australia and New Zealand - understand the importance of the trade war.”

Trade talks that started at the end of last month suggesting a thawing of relations showed the first positive step for the hedge fund manager.

Duty rates on $200 billion in Chinese goods are due to rise to 25% from 10% if no trade agreement is reached by March 1. But while last week’s meeting failed to get over the intellectual property sharing issue sticking point, the fact that presidents Trump and Xi are talking about meeting later in February shows a willingness to come to an agreement.

He added: “The fact that China has proposed a truce in the trade war through more trade, rather than restricting trade, is the way forward. It will create an even bigger market going forward.

“That will create a more fair and transparent trading system which would benefit both China and the US - as well as Australia and New Zealand. 

“Just looking at the US and Donald Trump’s policies, he has proposed many trade wars including ones with Canada, Eastern Europe and European countries.

“But what I believe he really wants to achieve is an overall reduction in the tariffs to zero - and to have a much more balanced and transparent trading system. 

“Therefore, I don’t think it’s Donald Trump’s true intention to restrict trade. What he wants is to have trade based on fairness and transparency.

“I think China understands that. That’s why I think both China and the US both will come to an agreement. Australia and New Zealand will of course benefit from this.

“As long a the politicians are rational and flexible and make this a business issue it will work out.”

Even if the trade conflict is resolved overnight, Zheng recognises it has already had an impact causing a slowdown in the economy. 

“What we need to understand is what has caused the slowing down in the Chinese economy,” he said.

“Business activity is based on confidence. For six months of the last year China and the US have been having trade war discussions. And that has affected everybody’s investment sentiment. 

“But overall, I think the Chinese economy remains strong.

“When the trade war is resolved I think China will go back to its historic growth pattern to 7-8% GDP growth rate.”

The highly-regarded hedge fund manager who has been used by the Norwegian Sovereign Fund with its pension fund in the past says the trade sabre-rattling is nothing new.

Referring to the spat between the US and Japan three decades ago, he said: “I think it’s the same issues in China and the US. 

“Any trade war cannot last too long as its hurting both countries, especially given the fact that many US companies are making investments in China.

“Going forward, I think China will be promoting more domestic consumption to fuel growth. That means there will be less volatility in the economy and that will enhance the predictability of the growth cycle.

“My point is that if growth is driven by domestic consumption there will be less risk to the equity markets.”

The hedge fund manager will be keeping members updated at our roundtable events later in the month.

To register for our Melbourne roundtable click here.

To register for our Sydney roundtable click here.


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