Michael Lai (Chinese equities)
Contrary to the beliefs of the US president, there can be no “winner” from any trade war. It may be seen as the start of a negotiating tactic to reach some compromise but markets will sell off as uncertainties arise.
The hope is that cooler heads ultimately prevail and China adopts more of a measured stance on the matter.
In our view, this presents another of those buying opportunities where the economic reality for China and the local universe of stocks is not as material as many perceive. China’s economy has rebalanced over the years to the point where domestic demand now represents some 55% of GDP.
Hans Ulrich Jost(European value equities)
Although US-Sino tensions appeared to recede somewhat as Easter approached, it would seem unwise to rule out further posturing and counter-posturing over the weeks and months ahead. However, the one resounding observation is that it is difficult to see how the US could benefit from the imposition of tariffs and counter measures since the Trump administration is not holding any of the aces. Having failed to invest in sensible or sustainable infrastructure over the last 40 years, US steel production facilities are inefficient, obsolescent and incapable of competing with high-grade overseas steel producers, regardless of a 25% import tariff. Furthermore, under such conditions, the major US players in non-aluminium aerospace production, auto manufacture and heavy industry will simply have to pay significantly higher input costs for the sake of non-material US job creation. This in turn would present opportunities for European steel producers, with, for example, the dominant Dutch player’s business mix being primarily focused on high-performance steel which the US cannot manufacture. It is also worth bearing in mind that any retaliatory measures on the part of China are likely to involve the levy of much greater premiums on Chinese-produced electronic components on which the US is highly dependent. A trade war is a battle that could create opportunities – but not in the manner the Trump administration intends.
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The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development.