Arrest of Huawei CFO Meng Wanzhou leads to Market Uncertainity

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Huawei Technology’s Chief Financial Officer, Meng Wanzhou, daughter of Huawei’s founder Ren Zhengfei, was arrested in Canada on December 1, and the United States was seeking her extradition for violating US sanctions against Iran. The stock market was already in a state of panic after the fall of nearly 800 points by Dow industrial stocks and the decline of 784 points. Not only by charging, but taking over, a prominent Chinese technology leader, it creates enormous uncertainty in the markets, as it cannot be solved easily and quickly.

Concern over ongoing trade negotiations

This could also have significant repercussions on the trade negotiations that were recently announced. Last Saturday, President Trump and Chinese President Xi dined and agreed on a 90-day negotiation period to try to resolve at least some trade disputes. One of the reasons the Dow Jones lost nearly 800 points was a seemingly significant difference between the US and China, and Trump sent out tweets that lead to fear that the United States would be taking up a difficult position. US companies can be harmed even if the government does nothing. Chinese consumers are known to boycott foreign products when they believe that the governments of the country of origin of the society are abusing China, their companies or their citizens. Japanese automakers saw their sales fall in 2012 and in 2013 and in 2017, South Korean products were boycotted, with a 50% drop in Hyundai’s sales in China and a drop in sales of Lotte Shopping by 84% compared to June 2017.

Markets Sensitive To Uncertainty

In a market that consists of selling first and asking questions later, this type of event leads buyers to stand aside and sellers to try to go out. The markets have recovered to some extent from the initial low, but with a lot of reasons to sell and not much to buy, they could continue to remain under pressure. Stock investors hate uncertainty and there was plenty going wrong even before Meng’s arrest, such as numerous trade wars: especially with China,rising interest rates, the Feds reducing their balance sheets, US growth slump from what could be a peak of 4.2% in June, housing slowed down, slow international growth, Brexit, and the Democrats taking control of the House, to name a few. Now, the issue of the American government arresting a Chinese executive can also be added to this. More importantly, the arrest will be taken quite seriously by the Chinese people, its leaders and in particular its representatives. This is probably an unexpected consequence of the exit of the Iranian nuclear deal that no one has foreseen. It is this type of unknown event that can trigger a liquidation of the market because it has not been integrated with prices.

China’s Reaction

​China’s reaction to Meng’s arrest was very evident in their media. According to Chinese Media, the United States created an imaginary enemy, like China, to demonstrate its influence on the global community. With the arrest of the executive, the United States wants to smother Huawei. The Chinese Embassy in Canada expressed strong opposition to Meng’s arrest, saying it was a blatant violation of human rights. Despite incomplete information on the incident, the US decision goes against the consensus reached by Chinese and American heads of state in Buenos Aires, Argentina, at the G20 summit recently. It’s impossible for Huawei to want to deliberately violate US regulations. It will be difficult for the United States to condemn Huawei’s executive. Huawei is most definitely technologically stronger than ZTE and the situation is different from when ZTE was facing similar repression in the United States. Chinese officials called for the immediate release of Huawei’s CFO. According to experts, Meng’s detention was an US initiative aimed at warming the ongoing trade war between China and the United States.

About Ranjith R 93 Articles
Ranjith is now an Independent Research Consultant, A Research Professional with 4+ years of experience and worked for leading market research companies in India.

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