China Update

China trade talks stall | Views from our China equities team

Trade war rhetoric resurfaced this week after US President Trump abruptly announced plans to raise 10% to 25% tariffs on USD 200bn and an outright 25% of another USD 325bn worth of Chinese goods. Although some market commenters have speculated that this is a negotiating tactic from Trump to use as leverage as they enter the final stages of the negotiation, it still caught many investors by surprise. YTD market gains were in anticipation of successful trade negotiations concluding this year. Hence, the market sell off was broad-based. We have communicated to investors that we expect volatility down the road given the strong rise in markets YTD, regardless of the trade talks, and we were not surprised by the near-term consolidation.

Our base case remains for a negotiated trade settlement, and the likelihood of a “full-blown trade war" is low. A lot of US corporates operate internationally and China is seen as a huge market for them. The trade talks will continue and a Chinese delegation will visit Washington later this week to resume negotiations. We still expect a deal between the two giants, but when, is still unclear.

Further to this, the Chinese central bank, People’s Bank of China, announced that it will lower the required reserve ratio for mid- and small-sized banks focusing on local economies. The prompt action of the targeted easing suggested that the Chinese leaders have plans for different scenarios.

The negotiation path to a final US-China trade outcome remains a swing factor to market performance. From a medium-term perspective, we will continue to closely monitor events. Nonetheless, we believe that a gradual economic slowdown is already priced in and the Chinese authorities will provide necessary regulatory support to help smooth the ongoing economic transition.

We continue to be highly selective and believe our high conviction core positions have solid long-term growth prospects and will benefit from the domestic growth story. In our China portfolios, the overall revenue exposure of our underlying holdings to the US are minimal (China Opp: 1.2%, China A: 1.3% as of 6 May 2019).

Important legal information

To proceed, please confirm that you are a professional / qualified / institutional client and investor.

Views and opinions expressed are presented for informational purposes only and are a reflection of UBS Asset Management’s best judgment at the time a report or other content was compiled. UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. The information and opinions contained in the content of this webpage have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any errors or omissions. All such information and opinions are subject to change without notice but any obligation to update or alter forward-looking statement as a result of new information, future events, or otherwise is disclaimed. Source for all data/charts, if not stated otherwise: UBS Asset Management.
Any market or investment views expressed are not intended to be investment research. Materials have not been prepared to address requirements designed to promote the independence of investment research and are not subject to any prohibition on dealing ahead of the dissemination of investment research. The information contained in this webpage does not constitute a distribution, nor should it be considered a recommendation to purchase or sell any particular security or fund. The materials and content provided will not constitute investment advice and should not be relied upon as the basis for investment decisions. As individual situations may differ, clients should seek independent professional tax, legal, accounting or other specialist advisors as to the legal and tax implication of investing. Plan fiduciaries should determine whether an investment program is prudent in light of a plan's own circumstances and overall portfolio. A number of the comments in the content of this webpage are considered forward-looking statements. Actual future results, however, may vary materially. Past performance is no guarantee of future results. Potential for profit is accompanied by possibility of loss. 
© UBS 2019 The key symbol and UBS are among the registered and unregistered trademarks of UBS.

Reset