IMPACT OF ACCELERATING US-CHINA TRADE TENSIONS ON THEIR ECONOMY - AN ATTEMPT TO GUIDE INVESTORS BASED ON EMPIRICAL EVIDENCE

The United States and China?s relationship is certainly one of the major consequences in the world today. After 40 years of engagement with successful diplomatic ties the tensions over trade and security have put their relationship at stake. The prolonged US-China trade war has overshadowed all other global issues. Tensions have escalated on how the world?s 2 largest economies will find the common ground for peaceful coexistence at the time when both the administrations have been treating their negotiations in terms of distributive bargaining approach rather than integrated bargaining approach. The ongoing tariff war is just the beginning of this cascade. The financial market accentuated and augmented by uncertainty to erode investments leading to rising unemployment and a lower consumption and all that together puts into a situation of a global growth recession similar to that of a global financial recession. The ongoing trade war has been effecting the investor sentiments, investment sentiments, Consumer sentiments, supply chain disruptions, etc. and has led investors less likely willing to invest in this climate. The short-term interest rate had gone up and investors sentiment been down, the 10 year bond yield had started to decline, which has lead towards an inverted yield curve. If this trade war situation prolongs for a long time, it would become a serious concern, because an inverted yield curve is often considered as a prediction for economic recession by most of the economists. In this paper an attempt is made to access the impact of the accelerating trade issues between United States and China on their economy. This is done by considering: the financial market data of both the countries, stock indices, financial market data of the top BSE SENSEX companies that have their business activities in both US and China. In order to guide investors in selecting the optimum portfolio investments, the author has assessed the investment prospects of those Indian companies stock through the applications of financial analysis tools such as: Capital asset pricing model, Efficient Portfolio Frontier and Sharp?s Optimum Portfolio techniques.