Will Mainland China Impose Capital Controls in Hong Kong?
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You’re probably aware that two of the world’s largest economies, namely the United States and China, are tightly locked in a bitter trade war. This trade war has seen both countries impose heavy tariffs on billions and billions of dollars’ worth of each other’s goods.
Donald Trump, the US president, has accused China of employing unfair trade practices and theft of intellectual property. China, on the other hand, thinks that the United States is trying to impede its rise as one of the world’s economic super powers.
It would be an understatement to say that the implications of the US-China trade war have been far-reaching. Since these are the globe’s biggest economic powerhouses, their standoff has affected economies and markets all across the globe.
Where Hong Kong Stands in the Equation
Due to the embargoes and tariffs imposed on China by the United States, the importance of Hong Kong to China has risen significantly. Being home to one of the world’s most prominent financial hubs, Hong Kong generates a steady stream of capital for China.
However, the Extradition Law agreed between China and Hong Kong has created turmoil in the region, leading to widespread protests and political instability in the region. This, consequently, has led to an increasing number of investors to pull out their money from Hong Kong.
In order to stop the money from flowing out of the country, China is considering imposing capital controls in Hong Kong, which will severely restrict the amount of money being withdrawn from the country.
China has doubled the number of troops stationed in Hong Kong – a move that has done little to calm the situation. And as things stand, Hong Kong is moving towards illiquidity.
The Implications of the Trade War in the US Financial Market
The trade war has had a massive impact on the United States’ financial markets as well. With tech companies banned from doing business in China, their COPs have gone up and profits have plummeted down. The upshot of this is that it has had a huge impact on the stock market.
What does it mean For Investors?
As things stand, the world is moving towards another economic recession. This has created obstacles for investors. Where do they park their wealth? How do they maintain high returns?
As we’ve discussed, the economic instability created by the trade war means that foreign investments just aren’t a good idea right now. The same goes for stock investments: businesses just aren’t flourishing at the moment.
All of this leaves few investment alternatives, with the commodities market, particularly the precious metals market, being one of the safest ones.
While gold prices have been falling over the last year, there are signs that indicate this trend is about to change.
Central banks around the globe have increased their gold purchases significantly, which means that its highly likely that gold prices are going to increase in the near future.
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