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US capital controls among 2020 'grey swan' events, strategist says

Key Points
  • Grey swans are potentially significant events which are considered unlikely to happen but still possible.
  • U.S. capital controls could be one of them, an expert says, pointing to the forced unraveling of Grindr's Chinese takeover.
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The U.S. introducing capital controls in the wake of its trade war with China is among the top 10 "grey swan" events for 2020, according to Bilal Hafeez, the CEO of financial strategy firm Macro Hive.

Grey swans are potentially significant events which are considered unlikely to happen but still possible, and Hafeez suggested that the U.S. focus on trade in goods and services with China renders the introduction of capital controls a "real possibility" to protect American business.

"The larger question is that the strongest asset the U.S. has is intellectual property and its corporate performance," Hafeez told CNBC's "Squawk Box Europe" on Thursday.

"What we have seen in recent years is that there has been significant Chinese investment in Silicon Valley, Chinese companies are buying U.S. companies, so the U.S. could say 'hang on, we're not going to accept that anymore'."

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Hafeez pointed to the U.S. forcing a Chinese firm to sell gay dating app Grindr due to data sensitivity concerns in May.

"What we could see is a more extreme move in that direction, where the U.S. says almost all Chinese investment in the U.S. is going to have to stop, and this would be viewed in the context of a cold war between the U.S. and China," he added.

Japanese currency intervention

Another of the more likely scenarios among Macro Hive's 10 grey swans is Japan intervening in foreign exchange markets, since it appears to be running out of conventional monetary policy options in efforts to stimulate the economy.

"It doesn't really have many options on the monetary policy side, it's already buying bonds, it's buying equities. The one thing that has worked in the past for Japan is intervening in currency markets, so there could be scope for them to intervene," Hafeez said, adding that this would elicit a U.S. reaction given the Donald Trump administration's focus on currency rates.

Among other grey swan events listed by Macro Hive were a surge in euro zone inflation, Apple buying Disney, Tesla partnering with Hyundai, the U.S. Federal Reserve disintermediating banks through digital currency, and drone attacks on U.S. installations in the Middle East.