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Both Sides Dig In As Fresh China Sanctions Loom

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Insights and Market Perspectives

Both Sides Dig In As Fresh China Sanctions Loom

Author: Greg Valliere

May 29, 2020

DOWNSIDE RISKS EVERYWHERE: Minneapolis riots and fresh virus hot spots are generating headlines this morning — but for the financial markets, the focus is on a looming crisis that could target Chinese banks.

A DEEP ANTIPATHY TOWARD CHINA extends from Washington to Ottawa, from the EU to Australia. U.S. sanctions have had no impact on Chinese behavior, so President Trump may focus on the explosive issue of financial restrictions when he meets the press later today (time hasn’t been set yet).

LOOKING AT THE OPTIONS: The idea of de-listing Chinese companies on U.S. stock exchanges or ending U.S. Thrift Savings Plan investments in Chinese stocks are suddenly seen as insufficient. And the option to curbing Chinese shipments of medical products and pharmaceuticals cannot happen overnight; building new U.S. plants is a longer-term proposition.

A U.S. CRACKDOWN ON HONG KONG imports and exports would have a modest financial impact, so China hawks in the Trump Administration are proposing a much more serious step — sanctions on foreign banks and corporations that deal with Hong Kong banks.

MUCH OF CHINA’S BANKING is conducted in Hong Kong, mostly with U.S. dollars. Could the U.S. penalize foreign banks that deal with Hong Kong banks? Could the U.S. deny Federal Reserve credit lines to Chinese banks? Could foreign banks get cold feet in dealing with U.S.-sanctioned firms?

THESE THREATS HAVE BEEN LEAKED FROM WASHINGTON, provoking a media firestorm in China, where some hawks are warning of a “financial war” that could speed up Beijing’s development of its own digital currency and, potentially, lead to sales of U.S. Treasuries.

AND THE HARD-LINERS have a new issue: a court ruling in Canada on Wednesday that could lead to the extradition of a top Huawei executive to the U.S. Some analysts think this ruling could prompt fresh Chinese sanctions against Canada.

COMPLICATING THIS DEEPENING CRISIS is the Nov. 3 U.S. election. Polls indicate the American public strongly disapproves of Beijing’s role in the pandemic, its crackdown on Hong Kong, and the pervasive hacking of U.S. companies. Both Trump and Joe Biden will compete to blast out the toughest anti-China rhetoric.

WITH TRUMP SLIPPING BADLY IN THE POLLS, he needs fresh issues. He’ll promise a harsh crackdown on the Minnesota rioters, and he will ratchet up the threats today against China. There’s no thaw in sight as a U.S.-China Cold War intensifies — and as hard-liners seek to drag financial institutions into this brawl.


The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

©2023 AGF Management Limited. All rights reserved.

Written by

Greg Valliere

Greg Valliere

Chief U.S. Policy Strategist

AGF Investments

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