Date
18 November 2017
The biggest risk for tech shares is that their valuations are no longer attractive. Photo: Reuters
The biggest risk for tech shares is that their valuations are no longer attractive. Photo: Reuters

Trade dispute, high valuation could end equity rally

Although the Hong Kong market maintains a strong upward momentum, US stocks are already showing signs of peaking.

Investors should also take caution amid macro headwinds that are building up. There is, for example, the looming US-China trade war.

Chinese Vice Premier Wang Yang led a delegation to attend the first US-China Comprehensive Economic Dialogue in Washington last month.

The United States requested China to remove tariffs on certain US imports, while China challenged the US over outdated regulations on export controls.

At the end of the talks, both sides canceled a press conference, indicating wide differences on the issues discussed.

The US market accounts for nearly 20 percent of China’s exports. Trade friction between the world’s two largest economies is not good news for industrial and export stocks.

Separately, the US Congress voted last week to impose further sanctions on Russia over its interference in the 2016 presidential election, annexation of Crimea and other perceived violations of international norms.

US President Donald Trump has been forced to take the action, although he really wants to improve relations with Russia.

In response, Russian President Vladimir Putin said on Sunday that the US diplomatic mission in Russia must shed 755 employees by Sept. 1.

Trump’s relationship with German Chancellor Angela Merkel also has been going nowhere.

If America’s relations with Europe and Russia worsen, China could be caught in the middle.

Political wrangling may not only lead to trade wars. Google has been hit with a record US$2.7 billion fine by the European Union in June. Many US multinational tech giants might suffer as a result of souring EU-US relations.

In fact, market leaders like tech shares are no longer attractive in terms of valuation, raising the chance that negative developments such as those mentioned could trigger a serious pullback of global equities.

This article appeared in the Hong Kong Economic Journal on July 31

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RT/CG

Columnist at the Hong Kong Economic Journal

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