The U.S.-China trade war continues to be a considerable obstacle for numerous industries, ranging from agriculture to technology. Now into its thirteen month, the trade war’s recent escalation has caused investors to question whether or not it is possible for both sides to agree on a trade deal.
In early August 2019, President Trump unexpectedly announced new 10% tariffs on $300 billion worth of Chinese goods. The tariffs are set to go into effect on September 1st. Just days after the new tariffs were announced, the Chinese yuan saw a swift devaluation past the psychological-level of seven per U.S. dollar. While China denied the actions were in retaliation, the Trump Administration has since labeled China a “currency manipulator,” further clouding the forecast for the industries taking the brunt of the punishment.
The trade war is causing pain to both of the world’s largest economies, and thus, puts the entire global economy in limbo. While agriculture, steel, retail, manufacturing, food, goods, and other industries are feeling the pain, biotechnology has largely managed to side-step any direct targeting in the trade war.
Trade War: Biotech Gain, Medical Device Pain
The healthcare sector has not been a major target for retaliation between the U.S. and China, with the very strong exception of medical devices and other medical technologies. In May 2019, U.S. imposed 25% tariffs on $200 billion worth of Chinese goods, the vast majority of which focused on medical devices, equipment, and associated technology.
Such medical devices impacted included x-ray diagnostic reagents, imaging equipment, dental drills, and more. However, a handful of medical devices were updated to be exempt from the 25% tariffs in July 2019: microwave ablation antennas, tube suspensions in x-ray, food allergen analysis, and more.
On the positive side, biotech, biopharmaceutical, and associated clinical trials & research programs have yet to face any direct targeting. This is very important because it allows clinical programs to continue uninterrupted, which ultimately benefits and contributes the well-being of global health.
Hong Kong Protests Currently Showing No Impact on Regional Biotech Industry
Outside of its trade war with the United States, the Chinese government has been keeping an eye on the Hong Kong protests, which have been ensuing for almost ten weeks. Recently, the protests have increased in violence, causing China to increase its threat of using the military to control the situation.
The Hong Kong protests were initially sparked over a proposed bill, which would have allowed for the extradition from Hong Kong to mainland China. The bill has since been “put on ice,” but the protests continue to mangle several industries, such as trucking/shipping and tourism.
Despite the protests and uncertainty about whether or not China will intervene, Hong Kong remains a very key financial hub in Asia. In addition, the country has greatly increased its focus on being a biotechnology hub, which has seen strong traction over the past five years. After successful reforms and policy changes, the market began to see an inflow of research & development investment from companies around the world, particularly China.
“Less than 5 years ago, the Science Park had fewer than 20 biomedical companies, and now it’s about 120,” says W. John Kao, head of the biomedical technology cluster at Hong Kong Science and Technology Parks.”
“Everybody wants to come to Hong Kong,” says Yuk Lam Lo, referring to the several Chinese pharmaceutical companies he is on the boards of. Such firms, he says, hope to locate some of their R&D in Hong Kong to get exposure to a more international environment. At the same time, international executives targeting China may “for one reason or other rather operate under Hong Kong laws as well as take advantage of our international schools” to educate their children, he says.”
As a result of greater Chinese biotech investment funneling into Hong Kong, combined with the strong uptick in Chinese biotech IPOs in the country, there seems to be a fairly strong indication that if China does intervene in Hong Kong, biotechnology could be potentially spared from any major action.
Avalon GloboCare Corp. (NASDAQ: AVCO): Swept Up In Trade War Hysteria, Watching For Bounce
One such biotechnology company that has seemed to have gotten caught up in the recent trade war hysteria was Avalon GloboCare Corp. (NASDAQ: AVCO). The biotech company has a strong presence in both the U.S. and Hong Kong, where it holds several key partnerships and clinical programs.
The company’s lack of exposure to medical devices or other industries impacted by the trade war, only further illustrates that Avalon’s recent trading seems to be diverting from reality. Since June 2019, Avalon GloboCare has seen a strong rebound from the $1.77 range, which effectively ended its strong downward pressure and bearish control.
Management released a number of key updates and material events, which helped justify the overall stability in the recent price action. On the daily chart and over the past several trading sessions, AVCO appears to be forming a bullish wedge pattern, which could be hinting at a potential upside breakout. In addition, the significantly-oversold stochastics and sideways moving average convergence divergence (MACD) only further highlights that the bears are out of steam. This opens the door for a potential shift to bullish control.
Turning to the weekly chart, Avalon GloboCare continues to show signs of potentially bottoming out. The MACD continues to level-off and showing signs of turning higher. This could potentially be an early-signal of a long-term bottom in the works. The deeply-oversold stochastics continues to be another positive for the bullish case.
Overall, the U.S.-China trade war continues to create a headache for the global economy, which has created increased volatility in global stock markets. Even industries with no direct ties to the trade war are being caught in the crossfire. However, this can help create opportunities for investors and traders that are looking to survey opportunities with less exposure to the trade issues.
Biotechnology is one key industry that has managed to remain a low-profile during the Washington-Beijing showdown. Even for biotech companies with offices and operations in both the U.S. and Hong Kong, like Avalon GloboCare Corp., the political issues and protests have largely not been an obstacle for clinical trials and research programs. Based on what we have seen transpire through 2019, it seems the U.S., China, and Hong Kong continue to focus on bolstering their biotechnology capabilities, rather than looking for ways to retaliate and hinder progress.
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