A trade war between the US and China launched the mechanism of the global recession. It will be worse, warns Marx Mobius, one of the most famous investors in the world. After a new “volleys” of Donald trump in the form of an additional 10 percent of fees for other Chinese goods, you can expect a 10% decline of stocks in emerging markets followed the global financial crisis, an expert quoted by Bloomberg.
“There is no doubt that sooner or later we will see a financial crisis, because we must remember that the period of cheap money ends,” emphasizes Mobius.
Wednesday, July 11, it became known that the President instructed to proceed with the introduction of an additional 10 percent duties on Chinese goods worth $200 billion It will add to previous duties that the U.S. regulator had previously besieged the goods from China at $34 billion.
In the new list of thousands of products, including food, tobacco, chemical products, coal, steel, aluminum, tires, furniture, wood products, animal feed, rugs and bikes. And introduced they can be very soon: the procedure of public discussion of the new list is only rated for 1.5 months. In addition, the US is preparing new restrictive measures against Chinese electronic products industry by $16 billion.
While trump had made it clear that progress on is not going to stop if Beijing does not make concessions to the United States, the White house is ready to additional duties on almost all shipments from China, components now about $500 billion a year.
The United States and the President, Donald trump is unlikely to suffer greatly from their rates because of the inflationary impact will match wage growth in the United States at a time when unemployment is low, says Mobius.
The index of developing markets MSCI Emerging Markets, which to date has fallen from the January peaks at 16%, according to experts, by the end of the year will lose another 10% from current levels. Over the last month MSCI fell from 1139,46 to 1076,19.
Emerging-market currencies are also under pressure, with the price index MSCI Emerging Markets fell by about 6% from a peak in late March, drew attention to Mobius. This forces the Central banks of Turkey, Argentina and Indonesia to raise rates to protect their currencies. Although the rise in rates is “short-term measure”, they can be counterproductive for countries with high debt level, said Mobius, adding that governments need to “bring up” your finances to recover the trust of investors.
Meanwhile, the world of impending economic Apocalypse have already said many of the world’s financial institutions.
So, experts of the International monetary Fund (IMF) warned of the possibility of the onset of a US recession in the next three years. The IMF drew attention to the fact that American economic policy is based on gradual fiscal consolidation that begins in 2020, and at the same time, the expected peak of the monetary tightening. This, according to experts, will lead to slower economic growth by 1.5 percentage points, i.e. to the level of 1.5% against expected this year, 2.9 per cent. And even this forecast may be overly optimistic.
Among the risks to the US economy — the growth of budget spending, increasing imports and expanding trade deficit and the account deficit of current external transactions.
To continue, the trade deficit, Donald trump began to increase duties on imports, first in steel and aluminium by 25% and 10%, respectively, and then unleashed a full-scale trade war with China. A number of countries have already responded to the US counter duties and this escalating battle is already facing losses to the United States.
Leading analysts at Bank of America last week presented its forecast, noting that the world is on the threshold of a new global crisis, and the situation in the economy is similar to the situation in 1998.
Emerging markets are now pushing a strong dollar that is reminiscent of the situation of the late 1990s when the global collapse happened due to the local currency crisis.
Earlier, the world Bank, in his review of “Global economic prospects” warned that after 2019, the situation in the world economy can be very disturbing. As noted in the report, this is due to the slowdown in the global economy: if in 2017-2018 global GDP was up about 3.1% per year, then by 2020 this rate will decrease to 2.9% per year, primarily due to protectionist policies.
IMF chief Christine Lagarde also noted that the only direct effect of the mutual duties, it is a minus of 0.1-0.2% of global growth.
However, while the key signals of the upcoming recession has not reached a critical level. For example, the spread between the rate of return on two – and 10-year U.S. Treasury securities not yet crossed the zero mark, which marks the beginning of a recession. Moreover, the boom of technology companies in 1998, happened too fast in the past five years the NASDAQ soared by 335%, while the current growth of high-tech index less than 150%.
All crises of the past 50 years happened in one or two years after the spread moved into negative territory. In case of continuation of fed policy, the spread will approach zero by the middle of 2019, then “turn on timer” the countdown to the next crisis, which, if to be a “pessimist”, there will be in 2020, and to be “optimistic” in 2021, experts say.
However, it can occur much earlier and without warning. Many analysts say that technology stocks and corporations overbought. Capitalization is at its peak and under such conditions, the collapse can occur at any time.
However, Mobius sees the situation and reason for optimism. According to him, Brazil and Turkey can benefit from trade war due to the decline of their currencies, India, South Korea and Vietnam can succeed in the development of protectionism.