Investment Strategies

Protectionist Tensions Will Endure For "Some Time", Pictet Warns

Tom Burroughes, Group Editor, 10 August 2018

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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. 

 

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