April 29, 2024, 3:20 pm EDT
US and China
It takes time for the wars to expand and escalate. Because there are efforts to be made in the process of alliances, negotiation, preparation and the coming unknown outcome or disasters.
As everyone knows what happened now after the third years of the Russia-Ukraine wars and the Hamas-Palestine-Iran-Israel war. More importantly, the coming US-China confrontation is about to surface after Blinken came back from China last week. Blinken gave a clear message to China that if China kept supporting Russia by supplying parts and equipment for Russia, then the US is going to take actions to restrain it. The outcome should be straightforward that China will ignore Blinken and the US and continue to do what China wants to do.
As a result, more military exercises would happen in South China Sea (against Filipino and Vietnam), Taiwan Strait (against China), and the East sea (against Japan).
We believe the US would start sanctions against China in the banking system or tariff. China could make more military exercises in the above regions in exchange. Of course, China would also get more power through the US company. For example, Elon Musk visited China and boosted his company Tesla (TSLA) by +14% now since he may work with China for his software / autopilot. This is similar to how Tesla set up and manufactured electric cars in China a few years ago. On the one hand, Elon got a great deal from CCP through the land, tax and other incentives. On the other hand, all trade secrets and know-how for the electric car and battery belong to China. The gains are for short-term. The damage is for the long-term in our view.
Therefore, the intensity and frequency of negative actions between these superpower nations of the world is going to get stronger in the coming months toward the US elections.
In this background, the defense industry (LMT, RTX, GD) is more likely to benefit. The energy sector could continue its strength. But general stock markets would go through high volatility. Dividend stocks, consumer staples and few defensive types of stocks may be able to stand firm. However, it would be better to stay conservative for the months ahead because of the further development between the US and China.
