LONDON — What trade war?
So optimistic is Goldman Sachs Asset Management about a deal between the world’s two biggest economies that it recently bought more Chinese stocks. While headlines on the US-China trade tariffs have roiled markets this month, the bank’s investment management unit — which oversees about $1.4 trillion (Dh5.14 trillion) — has reinstated its long position on China’s onshore shares, according to executive director David Copsey.
“With any negotiation there needs to be a reason to come to the table,”
Copsey, who’s part of the global portfolio solutions group overseeing about $115 billion, said by phone from London, referring to the US levy hikes on China. “We see all the announced tariffs to-date as material but we don’t think ultimately they will be destabilising to global growth.”
Dh2.6trvalue global stocks have lost over the past week as trade tensions soar
Goldman isn’t alone in its optimism, even as escalating trade tensions have wiped off about $2.6 trillion from global stocks in the past week and sent Chinese exporters reeling. Robeco is also betting on a resolution between the superpowers and looking to buy the dip once market jitters calm.
Futures are pointing to gains on the S&P 500 on Tuesday, after the benchmark posted its worst drop in four months in the previous session.
The Goldman Sachs unit’s multi-asset funds also trimmed US equity exposure in the past week, making them roughly neutral on that market. Their positioning remains broadly risk friendly. While the business cycle is reaching its later stages, moderate inflation, economic green shoots and supportive monetary policies are all painting a fairly rosy picture for Copsey.
To his team, the place to be is emerging markets, where he sees growth accelerating again amid China’s policy support. The yuan’s weakness will also help Asia’s largest economy cope with the higher tariffs, he said. The asset manager estimates the hikes will affect less than 1 per cent of gross domestic product, for both the US and China.
1%net effect of tariffs on GDPs of US, China, according to reports
Also hopeful about a resolution is Fabiana Fedeli, global head of fundamental equities at Robeco Institutional Asset Management BV. There could be opportunities in the most disrupted markets — equities in Germany, Japan and Taiwan, for instance — though it’s still too early to jump in, said Fedeli, whose firm oversees the equivalent of about $182 billion.
“Both sides really want a deal, need a deal, particularly because you’re going to have presidential elections pretty soon in the US,” she said on Monday. “You could have more volatility as we go through different tweets and possibly there’s going to be more opportunity to buy in the near term but probably just not now.”
Stocks are still the place to be, according to Goldman Sachs Asset. Its multi-asset funds have a small long on European banks, the region’s chronic underperformers, which are too cheap, Copsey said. And government bond yields are likely to rise, albeit slowly, as rate cuts are improbable amid still low odds of a recession, he says.
“We think the economy’s expansion phase is going to be elongated, and there’s unlikely to be severe pressure until the second half of 2020,” he said. “In that environment we would look for opportunities in market drawdowns.”