Welcome the thoughts on the market. I'm Michael Zezes, head of Public Policy Research and Municipal Strategy for Morgan Stanley.

Along with my colleagues bring you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and

financial markets.

It's Wednesday, July 29th at 11 a.m. in New York.

Tensions between the U.S. and China continue to tick higher.

Already this year we've seen the U.S. D. certified classification

of Hong Kong as an autonomous region. Last week saw each country take a turn to closing

one of the other's consulates. The tensions included an indictment by the U.S. of two Chinese nationals accused of trying to steal COVID vaccine data from US companies.

It's just the latest in the trend of deterioration in the relationship between the US and China, which investors fear could have substantial economic and market ramifications given their interlinked economies.

It's a valid concern, but it's something we expect to play out in a nuanced way over the medium term and focused on specific sectors of the global economy as opposed to a hard abrupt and complete economic decoupling.

For example, tariff escalation in 2018 and 2019 brought the global economy to the brink of a recession.

But these year's escalations have been driven by non-tariff actions with

sector-specific ramifications such as export restriction controls on

semiconductor equipment. Actions like these impact the semiconductor sector

but left little evidence of impact on the broader markets or macroeconomic trajectory. Fortunately for investors, we have a plan for this trend, one we detailed in a recent Morgan Stanley Blue Paper called investing for a multipolar world.

A multipolar world is one in which there are more than two standard setters in global rules and norms, and we argue that in key sectors the U.S. and China are, intentionally or not, in the process of creating separate spheres of influence.

So this means investors can plan accordingly by identifying sectors where the U. China have mutual interest in decoupling, then see which companies this creates opportunities for, and which companies this creates new costs and headwinds for.

As an example, we see opportunities in Asia Tech and European

Telecom, areas where currently dominant global competitors may be increasingly

boxed into domestic markets. Conversely, there could be challenges in the auto sector, where technological advances in automobiles could increasingly attract government restrictions on where companies can locate supply chains and sell their product in the name of protecting intellectual property that is deemed essential to national and economic security.

And if you think this trend might not be worth your time, because the US election might yield a result that eases tensions with China, don't.

Regardless of the outcome in November, we don't think this trend toward a

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