What you can do to protect your investments from fallout from the US-China trade war

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Even while Singapore has stayed neutral in the heated trade war between the two biggest global economies, China and the United States, protracted tensions have still had an effect on the Lion City, as well as many other countries around the world.

The US has imposed considerable additional tariffs on imports from China this year, which in turn sparked retaliatory measures. Increased tariffs translate to higher retail prices, and therefore it’s possible that businesses such as Starbucks, Samsung, Mercedes Benz, and Apple could report lower sales for this year as a direct result of higher tariffs.

The Trump administration levied 10 and 25 percent tariffs on cars, as well as raw materials like aluminum and steel, making it possible that a new car or phone could be as much as 10 to 25 percent more expensive.

For smaller suppliers in countries such as Singapore or Malaysia, if the businesses they supply to negotiate for lower prices or if they themselves see lower sales, these suppliers may experience losses.

It’s also possible, however, that if the United States looks away from China and turns to alternative suppliers in the ASEAN region, sales from these companies will post higher profits, making them a potentially good investment.

Higher tariffs could cause higher inflation in countries affected by the tase war. And in countries where imports are sent so that they can be sold at better prices, inflation may decrease.

Since additional tariffs have such a big effect on supply, demand, and profitability, investors would do well to keep their eye on their investments.
Industry experts acknowledge that since businesses that export their goods will possibly be affected by trade wars the most, a safer investment would be shares or bonds of domestic consumer-focused companies. In Singapore, these would be telecommunications, restaurants, property, and businesses that concentrate on the local market.

Singaporean businesses that import items from other countries could reap the advantages of additional tariffs. For example, if solar panels manufactured in China end up costing more and have fewer sales, chances are that the manufacturers will bring their prices down in countries like Singapore so that they can maintain their volume of sales.

Read related: Trade Minister Chan Chun Sing: Countries need to adjust, since US-China trade war may take long to resolve

Trade tensions between China and the US have also affected currencies in different countries, which has been advantageous for companies that import goods from these countries since it has led to lower costs.

It’s important for investors not only to know all these things but to stay ahead of fluctuations by keeping abreast of developments in the trade wars.
One thing they can definitely do is to choose bonds or stocks that are unaffected by trade tensions, or looking into index funds and exchange-traded funds (ETFs).

Another good piece of advice is to not buy bonds and shares from firms that are in the direct line of fire in the trade wars, such as semiconductor firms, as tensions will cause the demand to fall. US technology or clothing companies whose target market includes China may likely be affected by tensions between the superpowers.

If your someone who buys ETFs or unit trusts, now would be a good time to rebalance your portfolio if your investments are in China. Diversifying would your portfolio with investments in stocks and bonds in countries and sectors least affected by trade tensions is a wise move at the moment.

Read related: Asean countries could reap the advantages of the US-China trade war