Investment Strategies
Protectionist Tensions Will Endure For "Some Time", Pictet Warns
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The Swiss private banking firm is cautious about the trade protectionism saga, concerned that tensions will not fade soon. It recent cut its overweight stance on developed market stocks.
Pictet Wealth
Management, which a month ago disclosed it has moved towards
a neutral stance on developed market equities because of rising
international trade protectionism, warns the trade tensions will
endure for “quite some time”.
Earlier this month the Chinese government unveiled a list of
additional tariffs against $60 billion worth of US imports in
retaliation for the US’s proposed tariffs on $200 billion of
Chinese goods. Combined with the earlier-announced tariffs
on $50 billion of US goods (with $34 billion already in place),
the total value of US imports subject to additional tariffs will
be $110 billion, about 73 per cent of China’s total imports from
the US in 2017.
Rising trade tensions have rattled investors: this week, for
example, UBS Wealth Management said it was cutting
its overweight stance on global equities.
“China’s latest retaliatory measures seem fairly
restrained. Beijing hasn’t announced any non-tariff
countermeasures to compensate for the lack of firepower of the
tariffs themselves,” Dong Chen, senior Asia economist at Pictet
Wealth Management, said.
“The outlook for negotiations still looks uncertain given the
huge gap between what the US is demanding and the concessions
that China is willing to make, the economist continued.
In our view, China’s latest retaliatory measures seem to be
fairly restrained. Compared with the tariff plan announced by the
US, China’s latest retaliation covers a much smaller number of
products and at a lower tariff rate (about 12 per cent vs 25 per
cent). One reason, of course, is that China imports much less
from the US than the US does from China. And the lower tariffs
for certain product categories are presumably designed to reduce
the impact on Chinese businesses and consumers,” Dong Chen
said.
“That said, we also note that Beijing hasn’t announced any
non-tariff countermeasures to compensate for the lack of fire
power in the tariffs themselves. It seems the Chinese government
still hopes to limit any trade conflicts rather than escalating
them into other areas. All in all, the outlook for negotiations
still looks uncertain given the huge gap between what the US is
demanding and the concessions that China is willing to make.
Under such circumstances, it is difficult to envision that any
negotiated solutions will be reached in the near-term. The
tensions could drag on for quite some time,” the economist
added.
In July, Pictet WM said that on a tactical, rolling
three-to-six-month basis, it is tilting away from a bullish to a
neutral stance on developed-market equities as trade and
political frictions are rising.