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5 Apr, 2018 10:29

Trade war signals time to buy emerging market assets – money managers

Trade war signals time to buy emerging market assets – money managers

Mounting trade tensions between the world’s two biggest economies are boosting trade opportunities to buy emerging-market assets as China and the US are threatening each other with more tariffs day by day.

The war of tariffs looming between Beijing and Washington dragged emerging-market currencies down to the lowest level in nearly two months with developing-nation stocks dropping the most since early February. The market overreaction opens the potential for traders to buy into weakness, according to some of the world’s largest money managers, surveyed by Bloomberg.

“We’re all-in, in terms of the growth impulse, in terms of the relative valuations and that’s against a backdrop of being constructive on risk assets more broadly,” Simon Smiles, chief investment officer at UBS Wealth Management for ultra-high net worth clients, told Bloomberg.

Emerging-market assets might benefit from the escalating conflict as global markets’ optimism could be choked off with global yields to ultimately go down, according to Anders Faergemann, senior fund manager at PineBridge Investments.

“Valuations have already adjusted sufficiently to compensate for the increased equity volatility and EM spreads are better value now,” Faergemann said. “As long as China’s retaliation to the US provocation remains within reason, which is our base case, fixed income should benefit and the appeal of EM remains strong and it stands to benefit from investors returning to a 2017 frame of mind.”

Asian currencies might be among the most affected if the risks connected to tariffs keep intensifying, according to Sebastien Barbe, head of emerging-market research and strategy at Credit Agricole CIB. The strategist stressed that given supply chains and considering economies are more open to trade than other developing regions.

“It fuels the risk of a trade war, but we are not there yet. China has intensified its rhetoric, but I think we are still in a hard negotiation,” Barbe told the media.

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