Following several months of political and economic tension fueled by aggressive tariff increases, with both sides seemingly determined to out-hardball the other, the U.S. and China agreed to a 90-day “ceasefire” to attempt to negotiate a trade compromise, after which U.S. had threatened to raise tariffs on $200 billion of Chinese goods from 10% to 25%. Just days away from the March 2nd end date, on February 24th, U.S. President Trump announced he would again postpone planned tariff hikes following negotiation talks with Chinese President Xi Jinping.
The threat of a global trade war catalyzed by the world’s two leading economies has economic and political implications for both countries, emerging markets like Brazil and Vietnam whose economies are directly impacted, and ultimately, the financial stability of the rest of the world. Investors and consumers alike apprehensively await an outcome.
In September, Investment Europe laid out a list of 3 possible scenarios, summarized here. In the first scenario, the U.S. and China would come to a peaceful resolution following months of successful negotiation. In the second scenario, we would experience bilateral escalation, which would show both countries continuing to volley tariffs and trade measures. In the third scenario, we would find ourselves in a global trade war, the probability of which is low, but climbing.
While most economists agree that a full blown trade war will hurt (and indeed is already hurting) the economy, private equity investors have not reached a consensus on how the industry will be impacted, and the best courses of action to take. For LPs monitoring portfolio performance, this uncertainty can be unsettling. But, to quote U.S. Fed chair Jerome Powell, “Sound policy making is as much about managing risks as it is about responding to the baseline forecast.” Regardless of your stance, successful navigation through the trade war is dependent on adequate preparation, informed investment decision making, and meticulous portfolio management.
This level of depth in research and data tracking can be difficult to achieve without bringing on extra hands, but implementing industry-specific investment management software can ease the workload. Dynamo Software is an alternative asset management platform with in-depth portfolio management and research management tools to help you effectively monitor your prospective and current investments, especially in a precarious market.
Leveraging Portfolio Management Software
Institutional investors can gain exceptional transparency into their portfolios with Dynamo’s data capture and normalization service, HoldingsInsight. Acquired in 2017, HoldingsInsight turns unstructured information into structured data and reports. The team captures, normalizes, and reports on exposures, relationship structures, valuations, and other key data points, giving you a granular view of your portfolio across all asset classes, down to holdings-level data.
A Chinese-American trade war impacts industries, regions, and currencies, so knowing your portfolio’s exposure to each sector is crucial to monitoring risks. With HoldingsInsight, you can view exposures at various levels through direct or fund investments. Cross-sector reporting allows you to slice and dice data to view exposures by multiple variables (for example: by region and currency) and adjust accordingly. Extensive quality assurance steps taken at every level to ensure you are receiving accurate, high quality data and reports.
Dynamo also has powerful What-If modeling and cash flow forecasting modules. In a scenario like the Chinese-American trade war, the effects of which can ripple into indefinite directions, you can simulate how your portfolio might react to given outcomes, allowing you to mitigate risk and prepare for potential shifts in strategy.
Foreign investments often involve strict regulations surrounding marketing, communication, and data policies. It is possible that heightening tensions could result in the Chinese government tightening rules and regulations around overseas investments. In this scenario, it is imperative for those investing in China to understand how their investments may be affected by these rules, and be able to quickly implement any necessary changes to remain compliant or at least knowledgeable of how it may impact performance. Dynamo offers compliance management software so LPs can refine processes and stay aware of, prepared for, and aligned with new regulations.
Though the ripple effects of the trade war remain to be seen, you don’t have to proceed with your investments in the dark, or lose opportunities by sitting on the sidelines due to the potentially high risk. In navigating educated investing, Dynamo can be both map and compass, laying out various routes and destinations aligned to your intuition, and providing the guidance to follow them.