My
view: I like it that China has retaliated tit for tat, because there is
no way a trade war will be good for either country. The fact that China
did that will actually hasten the "end" to the trade wars quickly.
Trump will now have to sit down and negotiate a kinda truce.
The
emerging markets selldown has been way overdone, a kneejerk reaction
which has lowered average PE valuations of emerging markets to a 2 year
low. I agree with strategists who called this a great opportunity for
"all-in" into emerging markets, buying on this dip.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Some of the talking heads on the same issue (as reported by Bloomberg):
Simon Smiles, chief investment officer at UBS Wealth Management for
ultra-high net worth clients, said the potential market overreaction
gives further reason for money managers to buy into weakness.
“We’re all-in, in terms of the growth impulse, in terms of the relative
valuations and that’s against a backdrop of being constructive on risk
assets more broadly," he said on Bloomberg TV, adding that UBS is
overweight emerging-market equities and hard-currency debt.
Gene Frieda, global strategist at Pacific Investment Management Co.:
- "The
market reaction is confused, reflecting the fact that it has no
historical narrative on which to fall back. Today’s Chinese actions were
not surprising, but the market response shows how confidence has been
diminishing"
- "You
cannot separate tweets against tech firms from tariff actions against
China. This is a material change relative to the first quarter, when the
market was bulletproof to bad news"
- Frieda
said most probable scenario is a negotiated settlement before the first
round of tariffs kick in on both sides. Yet second-most probable is
that round one happens with the goods that have now been put on the
table
- China has a strong desire to deescalate the situation
- Argentina and Brazil could be "unintended beneficiaries" from soybean tariffs
Anders Faergemann, senior fund manager at PineBridge Investments in London:
- Increased
tensions may actually benefit emerging-market assets as markets could
dial down their optimistic view of global synchronized growth and
ultimately global yields will come down. That would add to the return
outlook for spread products such as EM, he said
- "Valuations
have already adjusted sufficiently to compensate for the increased
equity volatility and EM spreads are better value now"
- "As
long as China’s retaliation to the U.S. provocation remains within
reason, which is our base case, fixed income should benefit and the
appeal of EM remains strong and it stands to benefit from investors
returning to a 2017 frame of mind"
- Faergemann
favors the Mexican and Colombian pesos in this scenario as markets seem
to be overestimating political risk associated with their upcoming
elections
Anastasia Levashova, a fund manager at Blackfriars Asset Management in London:
- A
trade war will have a mixed impact on EM countries as China buying less
soy, avocados and wine from the U.S. means they’ll buy more from
developing nations. On the other hand, no one knows where it will
escalate, she said.
- More
important indicator of direct competition between the U.S. and China
was the launch of renminbi crude oil futures, a clear trend of
strengthening their own currency and trade balance
Kathy Jones, chief fixed-income strategist at Charles Schwab:
- "It
looks like a mixed bag for EM. On the one hand, it could benefit
agricultural producers like Brazil and Argentina, but I doubt that is
enough to offset the concerns about slowing global growth and
protectionism"
Sebastien Barbe, head of emerging-market research and strategy at Credit Agricole CIB
- "It
fuels the risk of a trade war, but we are not there yet. China has
intensified its rhetoric, but I think we are still in a hard
negotiation”
- If
risks continue to intensify, Asian currencies would probably be most
affected as some countries would be hit given supply chains and
considering economies are more open to trade than other developing
regions
Sean Newman, an Atlanta-based money manager at Invesco Advisers:
- Although trade war fears should be taken seriously, it isn’t a factor in his long-term outlook for emerging-market assets
- "We
like buying here but are conscious that trade tweets may present some
downside risk," noting Trump’s tweets on Monday, where he "hated Nafta
in the morning and wanted a deal by the afternoon"
Greg Saichin, chief investment officer for emerging-market bonds at Allianz Global Investors
- "I
still believe this is a negotiating stance for the U.S. -- somewhat
justified, somewhat politically driven by the mid-term elections in
November. The Chinese understand this"
- "Up
to this point, Mexico was getting all the collateral damage given the
negative NAFTA rhetoric. Now I’m not so sure. If this escalates into a
full blown trade war then global growth will decrease with negative
repercussions for oil and metals"
- Marginal
producers for oil and metals, or competitive producers with high fiscal
break-evens will be negatively impacted, he said. Frontier markets such
as Ghana, Angola, Mozambique, Zambia and Ecuador, which rely on these
commodities as a primary source of foreign-exchange generation, could be
particularly hurt.
Alejandro Cuadrado, global head of FX at BBVA in New York:
- Cuadrado says he doesn’t share investor fears yet and hasn’t altered his long-term outlook for emerging-market currencies.
- He favors the Colombian and Argentine pesos for their carry
http://malaysiafinance.blogspot.my/2018/04/trade-wars-sense-sensibilities.html