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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