The threat of military confrontation in the South China Sea could crash global equity markets in the coming weeks.
Trade tensions increasing between the US and China, US rate hike trajectory and technical weakness appearing in the S&P 500 and the Dow Jones are some reasons that point to the US equity market breaking down. We at Classiarius think that the US market is overdone and a healthy correction is long overdue. More importantly, the US – China trade war could turn into a power struggle in the South China Sea with the US and her allies working to contain an ever-stronger China.
China has taken control of the South China Sea using the Nine-Dash Line (70 years ago it was called the Eleven-Dash Line), that, according to the Chinese government allows its territorial reach to extend in some cases as far away as 1200 miles. Of course international courts have ruled that China does not have such far-reaching power, giving some relief to Vietnam, Malaysia, Thailand and a host of other countries that use the sea lanes in that area – $5.3 trillion dollars of goods pass through these lanes each year.
Today is 2 October, 2018. We do not make predictions often on our platform but we do believe that in the next two weeks, there will be a clash between the US and China in the region, likely sending equity markets crashing. These markets are overdone and well, if the S&P 500 breaks down, global markets will follow. It could get very hot in the region in the coming weeks.