Investment Strategies
Trump, Xi Call Tariff Truce - Wealth Managers' Reactions

Wealth managers react to the move by China and the US to call a halt to a further ratcheting up of tariffs from next January. The news sent stock markets soaring.
Equity markets rallied on news that President Donald Trump and
Chinese President Xi Jinping had agreed to a 90-day delay in
tariffs that the White House had planned to impose on Chinese
exports at the start of 2019. While the threat of rising
protectionism hasn’t gone away, and has been a nagging worry for
investors for the past year, the move at the Group of 20 summit
at the weekend gave wealth managers something to cheer about.
After the news came out a number of wealth managers reacted.
Here’s a selection.
Aninda Mitra, senior sovereign analyst at BNY
Mellon Investment Management
The big news from the Trump-Xi dinner is that higher tariff rates
as well as a broadening of the base of tariffable goods are going
to be suspended for at least 90 days. More details are still
awaited. But I would see this is as a short-term risk positive
development and safe havens should underperform in coming days.
The markets will be elated. However, I would look out for the
details and keep an eye on the 90 day+ horizon.
To be sure, underlying problems remain unresolved. It is not as
though existing tariffs are on the verge of being unwound. But
what Xi has managed to extract from Trump is a stay on any
escalation for three months. That interlude should see a stronger
effort to set a framework for more talks and quid-pro quos.
However, I remain mindful of the broadening bi-partisan
scepticism on the US end about its worsening relationship with
China. The Chinese views are also coalescing around the notion
that the US will simply not tolerate another nation to rise, to
the extent where US hegemony in Asia can be seriously challenged.
The three-month extension must therefore be seen in the context
of the “promise fatigue” of the US authorities and Chinese
wariness about eventual conflict (if not outright hostility)
becoming inevitable.
Raymond Ma, portfolio manager, Fidelity
China Consumer Fund
Asian equity markets and US stock futures rallied following US
President Donald Trump’s decision to hold off raising trade
tariffs on $200 billion of Chinese goods. The temporary truce
makes a deal more likely, which would ultimately benefit both
countries.
Trade tensions had spurred a sell-off in Chinese equities earlier
this year as investors worried about the earnings growth outlook
for Chinese corporates. A pause in the escalating trade spat will
stem any further tariff-related economic losses. However, if no
deal is reached in the agreed 90-day period, Trump will follow
through on threats to hike tariffs from 10 per cent to 25 per
cent. If this happens, we estimate it would shave 0.7 per cent
off China’s 2019 GDP growth vs. the 0.5 per cent reduction from
current tariffs.
Trump had previously threatened tariffs on a further $267 billion
of Chinese goods. But recent stock market volatility, continued
tightening by the Federal Reserve, and US soybean crops
previously destined for China rotting in fields might have given
him pause. China also stepped up during the weekend discussions
between Trump and China’s president Xi Jinping in Buenos Aires,
agreeing to buy a ‘very substantial’ amount of agricultural,
energy, industrial and other products from the US, according to
the White House. The two countries will also hold new talks on
technology transfer, intellectual property, non-tariff barriers,
cyber theft and agriculture.
Chief Investment Office, DBS
Taken together, the outcome of this meeting can be seen as a
win-win situation for both countries. For the US, a pause in
trade hostility would pave the way for it to export soy beans. In
the case of China, the near-term truce provides some breathing
space for the country in a time when macro conditions are
starting to deteriorate.
A temporary reprieve, but this is good enough for risk assets.
The trade truce is merely a stop-gap measure as fundamental
issues surrounding intellectual property theft remain unresolved.
Make no mistake, things could turn either way three months down
the road. But still, this is good enough for risk assets for the
time being, given that expectations leading up to the G-20
meeting were extremely low. Global equities have undergone
substantial corrections since October, predominantly on the back
of trade fears and tightening monetary conditions. With both
parties opting for a three-month truce, we believe that risk
assets could trend higher for the rest of 2018, particularly in
markets and sectors that have seen sharp pullbacks since the
October sell-down.
The other catalysts: subdued oil prices and a dovish Fed. With
tension surrounding the trade war put on the back-burner for the
moment, we expect investors to divert their attention to monetary
policies. To recap, the market is concerned about the Federal
Reserve’s tightening pace in 2019. But in a recent testimony, Fed
Chair Jerome Powell said that the policy rate is currently “just
below” the neutral level that will cause growth to neither
accelerate nor decelerate. On balance, this could potentially
signal a dovish tilt in the Fed’s overall monetary stance.
Mark Haefele, UBS Global Wealth Management chief
investment officer, UBS
While President Trump described the bilateral meeting with China
as "amazing and productive," we believe the rivalry between the
US and China will not be easily overcome, especially over the
issue of intellectual property and market access. A breakdown of
talks will remain a risk for markets and the global economy. US
trade relations with other partners also remain tense, and we
will continue to monitor the White House threat to impose
additional tariffs on car imports, which would represent a
significant headwind for the large German and Japanese auto
sectors.
However, the delay in the tariff rate increase is a positive
development relative to our base case and the meeting managed to
avert a significant escalation that could have deepened the
recent sell-off in global equities. A negative outcome could have
included the swift imposition of a third round of US tariffs on
an additional $267bn worth of Chinese goods. This further round
of tariffs would have targeted China's higher value-added IT
products and inflicted greater disruption on global supply
chains.
The outcome of the G20 meeting supports our moderate risk-on
stance. We added to our overweight in global equities after
November's US mid-term election on the view that markets had
adjusted to better reflect concerns over slower economic growth
and the escalation of the trade conflict. In the past week we
have learned that both the Trump administration and the Federal
Reserve are not dogmatically pursuing policies without regard to
the market and economic impact. We remain overweight global
equities and US-dollar denominated emerging market sovereign
bonds. Yet we also continue to expect heightened volatility
around policy and economic news. As a result, our equity
overweight is balanced with counter-cyclical positions –
including an overweight to 10-year US Treasuries and the Japanese
yen versus the Taiwanese dollar.