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What Impact Could Trade Wars Have on Brokerages?

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Jul. 2 2018, Published 9:32 a.m. ET

Trade wars are on the rise

Brokerages (VFH), which benefit from higher volatility as well as higher rates, could see a negative impact from escalating trade wars between the United States and China in the long term. According to a management representative from the Schwab Center for Financial Research, trade wars might negatively impact investor confidence as well as global economies.

Lower investor confidence could, in turn, impact brokerages such as Charles Schwab (SCHW), E*TRADE Financial (ETFC), TD Ameritrade Holding (AMTD), and Interactive Brokers Group (IBKR). Investors wouldn’t be engaging as much in trades, and the brokerages would thus see a fall in their client participation levels.

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The recent move by the Trump administration

On June 25, the Trump administration restricted Chinese investments in US technology stocks, which adversely affected the technology sector. China may decide to take retaliatory measures.

Since trade wars pose a threat to global growth in the long term, investors might become averse to investments in the equity markets. The fall in equities could also adversely affect the margin loan balances of brokerages. Also, the industries that are indirectly dependent on the technology sector could see a negative impact moving forward.

In the next part of this series, we’ll see how trade wars could impact bond yields.

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