Daily Management Review

A Potential Trump Trade War has Left these as Market Winners and Losers: JPMorgan


12/13/2016




A Potential Trump Trade War has Left these as Market Winners and Losers: JPMorgan
Adrian Mowat, JPMorgan's chief Asian and emerging market strategist is of the opinion that investors should look to counter-intuitive investments in China and Russia to play on the possibility of a trade war under President-elect Donald Trump.
 
"We could be spending the first half of 2017 looking at the downside of a proper trade dispute," Mowat said in a TV interview. n Tuesday. Mowat noted that any potential skirmish would likely be more than just a tit-for-tat with China.
 
"[Trump is] planning to put in place a corporate tax code which would heavily penalize imports and provide a tax incentive for exports," Mowat said. "This moves away from being a dispute between China and the U.S. to a broader trade dispute."
 
Trump has certainly set his sights on China. Trump threatened to slap a tariff of up to 45 percent on Chinese imports and repeatedly accused China of manipulating its currency in order to give its exports an advantage over U.S.-made goods, while on the campaign trail.
 
Policymakers on the mainland have been intervening to support the currency, not weaken it while China’s yuan has fallen against the U.S. dollar in recent months.
 
the “One-China” policy, a decades-old policy which effectively indicates the U.S. tacitly accepts the mainland has sovereignty over Taiwan, might not be followed by the U.S., indicated Trump which also angered China on Sunday.
 
And in what was a first for a U.S. president or president-elect with any Taiwanese leader since 1979, Trump accepted a call from Taiwan's President Tsai Ing-wen earlier this month.
 
Mowat noted that JPMorgan has gone overweight on China equities in a counterintuitive move.
 
"The MST China – the China we invest in – is almost entirely domestic earnings. And so what we would think would happen, is if you did have a trade dispute, you would get more domestic stimulus," he said. "That would actually be quite good for Chinese earnings, so perversely China looks more defensive in this environment than perhaps a Korea or a Taiwan, where more of the stock market is composed of exporters."
 
Driven by Russia’s potential to sail through a potential Trump-inspired trade war and not because of the president-elect's repeated praise for the country's leader, Vladimir Putin, was the reason that JPMorgan was also overweight on Russia.
 
Citing rising purchasing managers' indexes (PMI), even in long-dampened Europe, Mowat noted that overall, the global economy has improving. He said that irrespective of Trump's win, markets are rotating into sectors such as materials, consumer discretionary and financials with profits improving.
 
"Russia sits there as the cheapest emerging market on a forward price-to-earnings basis with a rising dividend yield. The index composition is dominated by financials and obviously by energy, so energy is our strongest call," Mowat noted. "It's also a relatively simple call because it doesn't seem to get caught up in this trade dispute which is much more about manufactured goods as opposed to commodities and energy."
 
With Mowat noting he's underweight exporters, such as South Korea and Mexico, JPMorgan has also taken some more usual calls to position for a potential trade war.
 
(Source:www.cnbc.com) 






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