Latin America markets affected by US-China trade deal

By Sergio Garcia Hernandez

BOGOTA, Colombia (AA) - Financial experts do not usually wait to decide on money -- they anticipate and the effects of a particular political event may have on world markets.

The recent signing of a "phase one" agreement between the U.S. and China, which slows down or at least suspends the so-called trade war, is part of those anticipated events.

According to several financial and economic analysts, it was taken for granted by markets.

Since the end of 2019, the Latin American market had been anticipating possible low trade tensions between the two major world economic powers. That is why the most crucial effects of the agreement, signed Wednesday, would have been foreseen since December.

Felipe Campos, manager of strategies and investigations at Alianza Group -- a fiduciary and commission agency, told Anadolu Agency that markets did perceive in advance the effects of an agreement suspending the trade war.

In Latin America, the main effect of the brake on the trade dispute was the revaluation of the region's currencies, which became evident with a drop in the value of the dollar last December, said the analyst.

For that reason, he affirms that any other consequence of the agreement, after its, would be "very limited."

"The dollar has already dropped its value quite a lot and I don't think that with the signing there will be any additional impacts," Campos said.

According to the analyst, since the end of last year, the world's stock markets, including Latin America's, had also taken into account that China and the U.S. would not escalate their trade dispute.

The stock market would have already had its rise in Latin America due to the end of tensions between the two powers and its eventual share price in the coming months would be associated with other events, such as the next presidential elections in the United States.

"Election years are good, but they are very volatile in the United States and that is reflected in Colombia. The issue of the global economic slowdown also generates noise that can affect oil prices," he said.

The expert also said he does not believe there will be a reactivation of trade in Latin America on behalf of the recent agreement unless Washington and Beijing enter into the second phase of negotiations and accept forceful tariff reductions on goods.

The trade war halt was not the only issue that allowed Latin American currencies to gain value at the end of 2019, according to Campos.

Several events led to the recovery of trade and stop currency devaluation in Latin America, such as the Federal Reserve's decision to keep interest rates unchanged, the announcement of a plebiscite that ended Chile popular uprising and the small cuts in OPEC oil production,

"I think all these elements helped the risky assets at the end of the year, especially to developed country's stock markets than emerging countries, but let's say they all benefited from it," said Campos.

The U.S. and China signed a "phase one" trade deal Wednesday that marks a major milestone in the more than two-year trade war between the world's top two economies.

The trade war has rattled global markets on fears it could spark a global slowdown.

At issue for Washington is a lopsided trade imbalance with China -- the U.S. had a $378.6 billion trade deficit with China in 2018, according to the Office of the U.S. Trade Representative -- as well as concerns over intellectual property theft, including what the Trump administration says is Beijing's policy of forced technology transfer.

China agreed "to make significant reforms" as part of the deal, including enhancing intellectual property protections and ending forced technology transfer, according to the White House, which said China further promised to make "substantial" purchases of American goods and services "in the coming years."

The agreement establishes a mechanism for the parties to resolve disputes during its implementation.

Trump imposed wave after wave of U.S. tariffs on Chinese goods and China has responded in kind. To date, the U.S. has imposed tariffs on roughly $360 billion in Chinese imports.

Trump maintained U.S. tariffs would remain in place until a final deal with China is reached "because otherwise, we have no cards left to negotiate with."

Ahead of the agreement's formal signing, the Treasury Department dropped China on Tuesday from its list of currency manipulators.

Instead of being treated as a currency manipulator, China is now on a "monitoring list" of U.S. trade partners that "merit close attention." The list includes Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, Switzerland and Vietnam.

*Jose Baez G. from Colombia contributed to the story