Trade Wars and a New Volatility Regime

Trade Wars → Less International Trade → Less Available Offshore USD → Weak EM currencies → Weak Equity Markets in EM

Trade wars have brought increased volatility to the system. As we stated in our first letter, the trade wars were noise and the real signal is the strong strategic competition between China and the United States.

The losers in the short term are Emerging Markets (EM) trapped in the  crossfire. The VXEEM (volatility index) is signaling a new volatility r…