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Wealth managers tell us what a 'phase one' deal means

The US and China signed a partial trade deal last week. Family offices and private banks reveal what they are looking out for in the days ahead.

Himanshu Kohli, Client Associates

Founder partner

In the short term, the US-China 'phase one' deal will benefit the global economy. The easing of trade tensions will release more liquidity globally and stimulate global growth, which has been in a slowdown phase.

In the long run, in case there are reversals in the deal process, or further disagreements on terms and conditions, this could benefit the Indian government's 'Make in India' initiative.

India has the added advantage of the recent cut in corporate tax, which can further incentivise manufacturing companies to shift here. India could also benefit in terms of foreign institutional investor flows if there is reallocation to other emerging markets away from China.

 

 

Himanshu Kohli, Client Associates

Founder partner

In the short term, the US-China 'phase one' deal will benefit the global economy. The easing of trade tensions will release more liquidity globally and stimulate global growth, which has been in a slowdown phase.

In the long run, in case there are reversals in the deal process, or further disagreements on terms and conditions, this could benefit the Indian government's 'Make in India' initiative.

India has the added advantage of the recent cut in corporate tax, which can further incentivise manufacturing companies to shift here. India could also benefit in terms of foreign institutional investor flows if there is reallocation to other emerging markets away from China.

 

 

Victor Lee, CIMB Bank 

CEO

The significance of the US-China 'phase one' trade deal is mainly psychological. It is a turning point for 'risk on' assets as the tariff war tension de-escalated significantly.  

Fundamentally, the impact to growth is limited given the narrow scope of the deal. Risks to global growth are still the base case and added to that will be intermittent geopolitical risks, especially in the Middle East.

Markets will look to a slew of macro data and earnings results for a better idea of market direction and if the current 'risk on' run-up has more headroom.

US equities have run up well ahead of fundamentals. Given stretched valuations, there has to be a significant surprise in earnings to keep the current momentum. EM APAC assets look appealing on relative valuations perspective.  

 

Steve Brice, Standard Chartered Private Bank

Chief investment strategist

The US-China trade deal is very important. One of the major factors undermining global growth was increased trade uncertainty as it reduced the incentive for businesses to invest. 

This should encourage investor risk appetite over the next three to six months, supporting equities, pushing development market bond yields modestly higher, while accelerating growth outside of the US and China should encourage flows out of the USD, allowing it to break out of its two-year uptrend.

The caveat to this outlook is the overbought nature of equity markets globally, alongside evidence of a reduction in market diversity, which suggests the risks of a short-term pullback (potentially around 5%-7%) are higher than normal.

Therefore, we cannot rule out buy-the-rumour, sell-the-fact behaviour in the coming days and weeks.

 

Ron Lee, Bordier & Cie

Executive director, investments

The US removing China from its currency manipulator list, although merely symbolic to the US, is a major face-giving gesture toward China.

I expect that China would reciprocate by actually allowing if not supporting its currency to strengthen toward 6.50 to the USD where it was, before the trade war began in 2018.

As far as we are concerned, there are a lot of assumed deals linked to 'phase one' to which we do not yet have any concrete details of.

Actual agreed upon amounts and frequency of agricultural purchases by China, and exact products that US tariff rate exclusions apply to are amongst some that need to be meted out.

 

 

Kenny Chong, Wealth Management Alliance 

Head of investment services

This trade deal between US and China term as 'phase one' is significant. For one, it can be seen as win-win for both sides for the time being.

Trump has somewhat accomplished his initial election promise, and this ceasefire could help him on the campaign trail and boost his re-election chances.

For China, we believe it’s a win as well. This forces China to take their reform more seriously and be more self-sufficient and independent of the US. They are likely to come out stronger as a result in the long-term.

Markets may take a breather after this is signed, as [it was] anticipated and financial assets have already performed strongly since mid-December 2019.