May 14, 2018

Chart of the Week: Recent Drop in CEI Reflects Investors’ Concerns About Trade Dispute

by Fathom Consulting.

by Fathom Consulting.

Global equity markets have regained their poise even though trade negotiations between the US and China recently hit a deadlock. Our China Exposure Index weights together US listed-firms that derive a large proportion of their revenue from China and would therefore be most sensitive to retaliatory sanctions in a trade war. On 29 March we highlighted that investors in these firms did not seem to be overly concerned about a deterioration in US–Sino relations — since then, the CEI dropped six points before steadying last week.

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The strong dollar and the slowdown in China’s economy might explain some of the decline over the last month or so, but politics seems to be the main driver. A benign outcome to trade negotiations, or one in which China agrees to open up its domestic market, should push the CEI higher, while a further escalation in tensions and the imposition of trade tariffs would probably have the opposite effect.

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