How Hong Kong, Argentina News Could Affect the US


Aug. 13 2019, Updated 2:23 p.m. ET

Recent developments in Hong Kong and Argentina could be important for US equity markets. Protesters in Hong Kong have blocked the airport for a second consecutive day. Media reports suggest military forces are gathering to restore peace in the region. However, any aggressive action by security forces could lead to chaos similar to the 1989 Tiananmen Square protests. These tensions come as the US-China trade war is escalating. China has blamed the US for Hong Kong’s unrest.

Politically and from a business perspective, Hong Kong is very important to China. Further unrest in Hong Kong may have significant implications for China’s GDP growth. Yesterday, the S&P 500 (SPY) fell 1.2%, possibly reflecting the rising geopolitical tensions.

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Argentina’s crisis could impact market valuation

Today, the Argentinian peso has fallen 21%, and the country’s equity indexes have fallen around 39%. The fall came after Mauricio Macri lost the primary election. Investors fear he might lose the general election in October.
Such a large plunge in the South American economy could impact US markets’ valuation. This year, the US has the srongest equity indexes among the world’s top five economies. The S&P 500’s trailing PE ratio is 20x, whereas its 15-year average is 17.4x. Furthermore, Argentina’s turmoil could boost the S&P 500’s valuation as money may flow into US equity markets.

Stocks to watch

Goldman Sachs’s best picks amid trade tensions include US service stocks Microsoft (MSFT) and Amazon (AMZN), whose PE ratios are 28.6x and 90x, respectively. Their sectors’ median PE ratios are 63.64x and 90x. These stocks could help mitigate the risk of a trade war. They have also created wealth for shareholders in the past.

These stocks and the Invesco QQQ Trust ETF (QQQ) could see fund inflow. QQQ follows the Nasdaq-100, which follows the largest non-financial companies. Yesterday, the Nasdaq-100’s PE ratio was 23.7x, and its 15-year average was 23.2x.

Alternative assets

Gold prices could also react to the above developments. Today, gold active futures have risen by 0.7%. Given the global slowdown and rising geopolitical tensions, gold could move toward $2,000. Additionally, with the South American currency crisis, cryptocurrencies could be on investors’ list. This year, Bitcoin USD has risen 199.7%.

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