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Pictet WM remains cautiously optimistic on EM equities

Pictet WM remains cautiously optimistic on EM equities

Pictet Wealth Management remains slightly negative on emerging market equities in light of continued market uncertainties despite global monetary easing.

Ongoing trade tensions saw China letting the yuan drop below seven per dollar for the first time in over a decade, after US President Donald Trump threatened to impose a further 10% tax on $300 billion worth of tariffs.

The aftermath saw both the S&P 500 and NASDAQ dropping by at least 3%. China’s central bank moved to stabilize the yuan, providing some relief on the markets.

However, Trump seemed to offer an olive branch. The same tweet on which he announced the imposition of the additional 10% tariff, also states that he is looking to continue positive dialogue with China on a comprehensive trade deal.

The Swiss private bank does not believe that this would affect emerging market equities’ struggles at this stage: ‘The 10% tariffs will apply first and hurt the global economic momentum and the supply chains in place, no matter what,’ Asia CIO David Gaud told Citywire Asia.

Pointing out the economic deceleration in Germany and proxy trade tensions between Japan and Korea, China and Taiwan, China and Vietnam, and the US and Europe, along with the trend in commodity prices, Gaud said that the firm’s position on emerging market equities will remain slightly negative.

Significantly, China broke through the seven level for the first time in decades, allowing the yuan to weaken and then stabilise against the dollar. Several key competitors to China also saw their currencies drop significantly, Gaud noted.

‘Year-to-date taking a basket of international currencies, we can see that the CNY has depreciated against some, like the USD and the JPY, is flat against the EUR and is up against KRW, TWD, GBP and AUD,’ he said.

This runs along the narrative that China seems to be maintaining the same stability policy, which is to uphold an equilibrium between developed countries and its emerging market peers, in a context of very diverging trends among global currencies.

Meanwhile, the trade war looks to continue escalating, with Beijing retaliating with new tariffs on $75 billion on US products. Trump signaled an intent to increase of the additional tariffs from 10%-15%, as well as an increase on current tariff taxes from 25% to 30%.

Pictet's position remains that Beijing’s behaviour in the market does not warrant a need to be particularly negative on high quality Chinese assets or leading Chinese firms in sectors with superior growth.

‘They continue to be attractive. More selectivity is required, some doors get shut but we still find diversified and valuable opportunities,’ he said.