The Motley Fool

Why investors shouldn’t worry about a US-China trade war

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Conflict between USA and China, male fists - governments conflict concept
Image source: Getty Images.

Investing in the stock market is full of risks. Some are known risks, such as a decline in GDP growth and its impact on profitability and valuations. Others, meanwhile, are unknown risks such as geopolitical challenges which can severely affect investor sentiment and prompt bear markets.

As an investor, it is sometimes difficult to ascertain which risks are worth worrying about, and which ones are of minor concern. One risk which has come to light during the last couple of years is the potential for a trade war between the US and China. Here’s why investors should not place too much emphasis on it when making their investment decisions over the medium term.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Mutually assured destruction

Although there have been tariffs placed on various US and Chinese goods in recent months, the reality is that an all-out trade war seems to be highly unlikely. While there has been some debate about who would ‘win’ a trade war, in the end both countries would probably lose compared to their starting positions. That’s because, ultimately, they would experience a hugely painful period from which it would be likely to take many years to recover.

As a result, the chances of a full-blown trade war between the world’s two economic superpowers seems low. Certainly, there have been some tit-for-tat tariffs placed on various goods, but an escalation of the situation seems unlikely to take place.

Risks and opportunities

Risks such as a US-China trade war could present opportunities for investors to take advantage of lower valuations. At the present time, for example, there are fears surrounding global inflation expectations and the potential for interest rate rises. Both of these risks seem to be far greater than the US-China trade war, since they have a good chance of taking place and could also severely impact the outlook for the global economy.

As a result, investing during periods where investors are becoming increasingly nervous about such risks could be a shrewd move. And with inflation likely to move higher in the US as President Trump’s spending and taxation plans come into effect, major change could be ahead for the world economy. In response, interest rate rises bring the risk of a general slowdown in economic activity, and this fear could provide wider margins of safety for bullish investors.

Focusing on risks

While there are a wide range of risks present at any time for investors, many of them never come to fruition. As such, it may be useful for an investor to focus only on the risks that seem likely to occur and which could have a major impact on valuations.

Otherwise, an investor is likely to feel constant worry and fear about what could happen, when in reality stock markets have generally risen and always recovered from any events they have experienced.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.