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The US-China Trade Conflict: What Should You Do?

Sudhan P.

The United States and China have been at loggerheads for some months now with tit-for-tat tariffs on billions of dollars’ worth of goods.

The conflict does not seem to be abating. Just last week, US tariffs on US$16 billion worth of Chinese imports took effect, with Beijing fighting back with its own levies on goods from the US worth the same amount.

Amid the trade war, the Straits Times Index (SGX: ^STI) has fallen some 10% from its 2018-peak seen in February.

Things could get worse, before becoming better. A market commentator said on CNBC that there is not “enough pain” yet for the two countries to change tack. Deborah Elms, the executive director at Singapore-based Asian Trade Centre, added that “we are in for a prolonged period of continuing escalating tensions.”

What should investors do with the trade war hanging in the background? That was a question posed during a panel discussion that The Motley Fool Singapore team (me included) appeared in during Invest Fair 2018 over the weekend. One lady also came up to me after the discussion to confess that she had been unable to sleep at night due to her fears about her investment in a locally-listed healthcare company.

Focus on things that matter

Here’s what I think investors should do.

Retail investors like you and me cannot control the trade war happening between the US and China. But, what we have control over are the investments we make, and how we handle our emotions. Instead of focusing on the fears, we should focus on the business fundamentals of the companies we own. Short-term fears create opportunities for long-term investors.

Billionaire investor Warren Buffett once said:

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a fly epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Stocks tend to rise over the long run, despite the short-term worries surrounding the world we live in.

Over in Singapore, the Straits Times Index (SGX: ^STI) had plunged close to 60% during the depths of the Great Financial Crisis of 2008-09, some 10 years ago. But, the index has since recovered to produce a sizeable gain of more than 100%.

There will always be negative news to spook the stock market every now and then. However, if we focus on the long-term picture, these short-term blips will not matter. In fact, such drops allow us to buy great companies at lower valuations.

We should also not time the market by dumping our shares, thinking we can buy the shares back later when things become clearer. Buffett had this to say when it comes to market-timing:

“People that think they can predict the short-term movement of the stock market — or listen to other people who talk about (timing the market) — they are making a big mistake.”

If you may recall, back in March 2009, many missed the boat to “buy back the shares” when the stock market suddenly started rising. Many were still sitting on the sidelines thinking that the V-shaped stock market recovery was a dud — in 2009, financial publication Barron’s released an article with the headline, The Easy Money’s Been Made. But, those who stayed invested throughout the crisis buying great companies would have been awarded tremendously.

The only thing we should do during any crisis is to stay invested, as espoused by Buffett:

“If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do. … If you’re right about the businesses, you’ll end up doing fine.”

Always remember: Time in the market is more crucial than timing the market.

The Foolish takeaway

The US-China trade conflict may or may not become worse. No one can tell for sure. However, what we can do is to focus on the things that matter, which is on business fundamentals and our emotions. To borrow Benjamin Graham’s words, in the short run, the stock market is a voting machine, but in the long run, it is a weighing machine. Would you rather focus your energy on the things that matter or on the things that don’t? It’s your call.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn't own shares in any companies mentioned.