Asia Unhedged called the end of the tech boom on March 29 (The tech bubble gets its (w)reckoning). The Trump Administration poured gasoline onto the fire by cutting off ZTE’s access to US-made chips. That persuaded China that building up its own chip-making sector was not only an economic priority, but a national security requirement. And that means a global glut of semiconductors.

The SOX semiconductor index has fallen by 16% since its March 3 peak. The US negotiating team now in Beijing wants China to stop subsidizing its semiconductor industry, a difficult argument to make after refusing to sell American chips to Chinese companies. That sets up a tough outcome for this week’s trade talks, and the market doesn’t like it. A simple way to think about it is that the expansion of world trade has centered on the creation of a global supply chain in electronics and other products that maximizes efficiency and reduces prices. The trade issues between the US and China threaten to break up the supply chain.

Contributing to the shakiness of global equity markets is the rupture in some of the world’s most heavily-indebted emerging markets, notably Turkey, whose currency is in free fall and whose stock market has lost 31% in US dollar terms since its August 29th peak. Asia Unhedged has been a Turkey bear since early September, and we note with satisfaction that Turkey is the worst-performing major market in the world.

Although Chinese stocks offer good value, the threats to world trade and the prospective disruption of the global supply chain are a powerful headwind for the time being. The most widely-traded China ETF in US markets, FXI, today fell below its 200-day moving average. So it isn’t a time to buy anything. Stay warm and dry.