It’s Time to Bet on Higher Volatility Again

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Trader Fred DeMarco works on the floor of the New York Stock Exchange, Friday, Feb. 28, 2020. Global stock markets are falling further on spreading virus fears. (AP Photo/Richard Drew)

Tensions are brewing.

All after China approved imposing new national security law for Hong Kong.

While details of the potential law are scarce, it will reportedly target secession, subversion of state power, terrorism, and foreign interference.  And it won’t sit well with the U.S., especially after President Trump said the U.S. will have “a very strong reaction” to new China legislation.

It’s a “disastrous decision,” added Secretary of State Michael Pompeo.

It’s “the latest in a series of actions that fundamentally undermine Hong Kong’s autonomy and freedoms and China’s own promises to the Hong Kong people under the Sino-British Joint Declaration.  “The United States stands with the people of Hong Kong as they struggle against the CCP’s increasing denial of the autonomy that they were promised.”

While it’s not clear what the potential repercussions could be, China is ready for a fight.

“The Chinese government is firm in its determination to safeguard China’s sovereignty, security and development interests, to implement the principle of “one country, two systems” and to oppose any external interference in Hong Kong affairs. If someone is bent on harming China’s interests, China will take all necessary measures to hit back,” says Foreign Ministry spokesman Zhao Lijian.

With potential new tension, we expect to see big spikes in volatility.  While the Volatility Index (VIX) has certainly cooled from its highs of $85.47 to a recent low of $28.47, we could see another sizable spike.  If a war of words, or threats of a new trade war emerge, the VIX could easily double from current value.

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