Wednesday 04 July 2018
Research / Market
The domestic bias and the sectorial mix of an economy will contribute to determining its resilience to trade shocks.
- Our view: As a base case, we expect limited tariffs will be implemented on different fronts with relatively controlled macro impacts while talks continue. Although talks have become more contentious, we do still see space for negotiation among the various parties. This is the main difference vs a proper “trade war”.
- Economy: The risk of a global trade war may impact GDP growth well before a war begins. We have already seen a deterioration in business confidence, and uncertainty could possibly weigh on investments. If the base case materialises, we expect the impact of protectionist measures on world trade to remain contained and that global economic expansion will continue in 2018 and 2019. If talks and negotiations break down (trade war), we would expect to see deeper recessionary effects on the economy, especially for the countries more exposed to the targeted sectors (i.e., Automotive).
- DM Equity: Amid the current trade concerns, on a regional basis, among Developed Markets, we prefer the US to Europe, and, in Europe, the UK. We identify three global themes to play in this context: 1) domestic assets; 2) quality factors and 3) defensive and rate-sensitive domestic stocks if tensions escalate.
- EM Equity: Trade tensions are negative for Emerging Markets, as they tend to push global inflation and US rates higher, reduce the willingness to invest, and could negatively weigh on the exports of some countries. We like stories that will likely remain relatively insulated from such concerns or can counteract potential negative impacts with effective policy actions (i.e., Russia, oil exporters, China on flexibility on policy, Mexico on US interaction, Greek banks).
- Multi-asset: A multi-asset investor can generally implement a prudent stance at different levels: 1) maintain cautious asset allocation exposure to countries that are highly involved in the global value chain; 2) opt for defensive sectors (Telecoms, Utilities); and/or 3) at the stock-picking level, seek companies that are diversified across global value chains.
Bavarian elections: Eropean political landscape continues to evolve
"The poor performances from the traditional parties in the Bavarian elections represent early signs of a political reshuffle at the federal level."
Brazilian elections: lights and shadows on the horizon
"The expected outcome of the presidential election occurred, with right-wing candidate Jair Bolsonaro (PSL) winning vs the leftist Fernando Haddad (PT)."
Asset class return forecasts - Q4 - 2018
We stick to the view that 2018 will be the peak of the global economic cycle. 2019 will most likely be a year of deceleration albeit with still above trend growth, before a further slowdown of growth towards potential in 2020.