China on our minds

Investors should always be in the practice of looking for sources of economic and investment uncertainty. For one thing, these kinds of uncertainties can dictate conventional wisdom and guide global economic trends. In addition, it’s always wise to see where the future terrain might be hazardous, and make an assessment of options as a result.

So, when looking for perhaps the greatest source of potential uncertainty in the markets today, one need not look further than China. In case you haven’t noticed, the country is engaged in a budding trade war with the United States, with tariffs already on the table, and even more tariffs proposed if an agreement isn’t reached in the foreseeable future.

Conventional wisdom

Conventional wisdom China
Breaking with conventional wisdom can add colour and insight to economic and investment analysis.

Now, in these blog and commentary pages, it’s often emphasized that we should be careful when looking at conventional wisdom, or at least ongoing media narratives. If you were guided by them alone, you might be tempted to think the worst is yet to come. But, as is often the case with conventional wisdom, taking a second, or even third, fourth or fifth look, might be fruitful.

For example, let’s take a look at President Donald’s Trump most recent foray into trade disputes and tariffs: Nafta, also known as the North American Free Trade Agreement. These renegotiations were accompanied by stiff tariffs on aluminum and steel, which were seen as making trade negotiations that much more difficult. Yet, in the end, a new trade agreement was reached, the USMCA (United States Mexico Canada Agreement), and the end result was a continuation of good trade relations, with Mexico and Canada making relatively small concessions to address ongoing American grievances.

Steady as she goes

There’s no reason to believe something similar isn’t happening with China. In fact, some believe the North American trade dispute serves as a precursor to what Trump has in mind for China. Even Trump critics concede that some of his stated grievances against China have some merit, such as the dumping of steel, as well as currency manipulation, and that some correction in this regard should not only happen, but will force China to modernize some of its economic and trade practices.

In fact, just yesterday, President Donald Trump said he’s hopeful that an agreement with China will be reached. Does this sound like the sky is falling in terms of the impact U.S.-China relations will have on the global investment landscape? Maybe not.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.


NAFTA’s effect on investments

The North American Free Trade Agreement (NAFTA) has been in the news in recent months because of President Trump’s desire to renegotiate the trade deal. Although various aspects of the treaty have become a topic of public discussion, such as the dairy sector, as well as subsidies for aerospace companies, what has been less talked about, but perhaps more impactful in scope, is the effect that these NAFTA negotiations can have on the continent’s investment sector.

Chapter 11 of NAFTA is specifically titled: Investment. It provides an established and predictable set of rules to invest across the borders of Canada, the United States and Mexico, while also establishing dispute-resolution mechanisms that facilitate the movement of capital across national boundaries.

The Donald Trump factor

NAFTA renegotiation investment

However, since the rise of Donald Trump onto the American political landscape, accompanied by his skepticism towards established trade treaties, an uncertainty about the future of NAFTA has most definitely had an impact on Canada’s investment sector.

According to Global News, a report prepared by research firm Pitchbook states that only $490 million dollar was invested in venture capital in Canada so far this year ending in April, which predicts a significant decline from 2016, which saw a record $2.11 billion invested in Canada’s venture-capital sector.

Canada’s private-equity sector was hit particularly strongly, in which only $990 million was raised up until April of this year, which is down from a level of $3.4 billion from the same time last year, and suggests totals this year will be below the $7.3 billion for all of last year. This puts Canada’s private-equity sector on pace to have its worst year since 2012.

The current uncertainty

So, the uncertainty surrounding NAFTA renegotiations seems to have a detrimental effect so far on Canada’s investment sector. What does this mean moving forward? Well, it can mean one of two things.

On the one hand, this current unease about NAFTA reflects just how much Canada has become dependent on the treaty, and how important its continuation is to provide stability and predictability.

On the other hand, there are suggestions that Canada might have to start thinking very seriously about the prospect of an end to NAFTA. Former Canadian Prime Minister Stephen Harper himself has recently said that he doesn’t believe the cancellation of the treaty is a bluff from President Trump. Instead, forces are at play south of the border that have made protectionism more prevalent.

Nevertheless, good investors know they have virtually no control over the politics of trade and investment. Instead, investors should always look for opportunities, despite any uncertainty. As the NAFTA process works itself out, Canada has ratified its free-trade treaty with Europe (CETA), and there will always be landing spots for global capital, whether it’s south of the border, or across an ocean or two.

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