Comment: Long awaited détente in US China relations reduces recessionary risks

Categories: Communiqué de presse Tags:

Jin Zhang, Senior Portfolio Manager

  • US China phase 1 agreement likely to last
  • Trade war far from over but reduces recessionary risks
  • US financial sector stands to benefit most

Investors are taking a breather. Over the weekend the US and China agreed on working out an interim deal which could be a first step towards ending a protracted and economically harmful trade dispute. It is a comprehensive agreement, covering a wide range of issues including the protection of intellectual property and the opening of China’s financial services sector. It is still tentative and incomplete, but I won’t dismiss its significance. Although there are still a lot of uncertainties, I am hopeful that the agreement will be formalized soon and will last. Much depends on whether these agreements of phase one will stand when phase two is not making progress in the future.  Since both countries have a lot at stake, they probably will.  It is in their own interest to reach a formal agreement in the next a few weeks, as opposed to letting the relationship deteriorate in an uncontrolled fashion.   

Trade war risk lingers on

Although downside risk is reduced by the deal, the trade war is not over. There still is risk of re-escalation.  What happens to the tariff hike scheduled for December is undecided.  However, at least both sides recognize there are gains in reaching an agreement. China needs its external environment to stabilize.  For the US, the deal not only reduces the risk of recession down the road but also opens up markets of potentially very large size.  The rest of the trade talk is likely to drag out without much progress, but that is widely recognized by the market and unlikely to derail what was agreed upon in “phase one”.

US financial sector to benefit – tech war continues

Other than US agriculture, the financial sector stands to benefit the most from the opening up of the Chinese market.  The financial market in China is almost as big as the one in the US.  It represents a significant opportunity for growth for US companies.  US financial companies have good reputation in general, and some of them already have good brand recognition in China.  They stand to gain meaningfully after the deal closes.

The tech sector is still in limbo.  The Huawei issue was “separate” from the trade agreement and I doubt there will be any break-through.  Even in the longer term, there will be significant fissure.  Not all companies are affected equally though.  Some, like Taiwan Semiconductor Manufacturing Co. (TSMC), should be able to perform well in a world of uncertainties.  But it is important to recognize that the “tech war” is ongoing and the underlying issue can’t really be resolved.

 Agreement provides uplift to economic sentiment

Although the cyclical pressure in many parts of the world is still high, the agreement helps to stem the sliding to the downside in both the Chinese and the U.S. economy. The agreement is wide-ranging.  Reaching such an agreement reduces uncertainties in the world.  The market will take time to appreciate its positive impact.  Europe should benefit too from the reduction of downside risk.  Emerging market economies should feel relieved that the downside to the renminbi is officially restrained as part of the Chinese commitment. 

For growth to bounce back, real economy needs to reassess risks

There still is pressure on the central banks to ease, but they can’t save the world economy alone. They need companies and households in the real economy to reassess risks, before growth can be resumed. The trade agreement reduces downside risk, which is a prerequisite for many businesses to start investing again. Investors preferring companies with real competitive advantages that can prosper even when there are many uncertainties are likely to fare better than those who rely on the central banks’ liquidity tap. 

This is the personal opinion of the author and does not necessarily reflect the opinion of Vontobel Asset Management.

Jin Zhang, CFA

Portfolio Manager/Senior Research Analyst
Executive Director
Jin Zhang joined Vontobel Asset Management in November 2005 as a senior research analyst and was promoted to deputy portfolio manager of the Quality Growth Boutique’s Emerging Markets Equity Strategy in June 2016. In addition to his portfolio management responsibilities, he maintains his research responsibilities focusing on the consumer staples and financial sectors.
Prior to joining Vontobel, from 2000 to 2005, he was an equity analyst at Lehman Brothers. He began his financial career in 1995 working in the finance department of General Electric (China) where he graduated from the Financial Management Program in 1998.
Jin Zhang received an M.B.A. in financial management from the MIT Sloan School of Management and a B.A. in economics from Beijing University. He is a CFA charterholder.
Investment Experience: 2000. Vontobel: 2005.

Contact presse: 
Voxia communication
T +41 22 591 22 66

Vontobel Asset Management
Vontobel Asset Management is an active asset manager with global reach and a multi-boutique approach. Each of our boutiques draws on specialized investment talent, a strong performance culture and robust risk management. We deliver leading-edge solutions for both institutional and private clients. Our commitment to active management empowers us to invest on the basis of our convictions. We deliver value through our diverse and highly specialized teams. Employing over 400 professionals worldwide – including 170 investment specialists – we operate across 13 locations including Switzerland, Europe and the US and create strategies and solutions covering equities, fixed income, multi-asset and alternative investments. The goal of achieving excellent and repeatable performance has been fundamental to our approach since 1988. A strong and stable shareholder structure guarantees our entrepreneurial independence and protects the long-term mindset that guides our decision-making. 

This marketing document was produced for institutional clients, for distribution in LU CH DE AT GB SE. 

This document is for information purposes only and does not constitute an offer, solicitation or recommendation to buy or sell shares of the fund/fund units or any investment instruments, to effect any transactions or to conclude any legal act of any kind whatsoever. Subscriptions of shares of the fund should in any event be made solely on the basis of the fund’s current sales prospectus (the “Sales Prospectus”), the Key Investor Information Document (“KIID”), its articles of incorporation and the most recent annual and semi-annual report of the fund and after seeking the advice of an independent finance, legal, accounting and tax specialist. This document is directed only at recipients who are institutional clients such as eligible counterparties or professional clients as defined by the Markets in Financial Instruments Directive 2014/65/EC (“MiFID”) or similar regulations in other jurisdictions. 

In particular, we wish to draw your attention to the following risks: Investments in the securities of emerging-market countries may exhibit considerable price volatility and – in addition to the unpredictable social, political and economic environment – may also be subject to general operating and regulatory conditions that differ from the standards commonly found in industrialized countries. The currencies of emerging-market countries may exhibit wider fluctuations.  Investment universe may involve investments in countries where the local stock exchanges may not yet qualify as recognized stock exchanges. There is no guarantee that all sustainability criteria will always be met for every investment. Negative impact on subfund’s performance possible due to pursuing sustainable economic activity rather than a conventional investment policy. 

Interested parties may obtain the above-mentioned documents free of charge from the authorized distribution agencies and from the offices of the fund at 11-13 Boulevard de la Foire, L-1528 Luxembourg, the representative in Switzerland: Vontobel Fonds Services AG, Gotthardstrasse 43, 8022 Zurich, the paying agent in Switzerland: Bank Vontobel AG, Gotthardstrasse 43, 8022 Zurich, the paying agent in Germany: B. Metzler seel. Sohn & Co. KGaA, Grosse Gallusstrasse 18, 60311 Frankfurt/Main, the paying agent in Austria Erste Bank der oesterreichischen Sparkassen AG, Graben 21, A-1010 Vienna. Refer for more information on the fund to the latest prospectus, annual and semi-annual reports as well as the key investor information documents (“KIID”). These documents may also be downloaded from our website at vontobel.com/am. The funds authorized for distribution in the United Kingdom can be viewed in the FCA register under the Scheme Reference Number 466625. This information was approved by Vontobel Asset Management SA, London Branch, which has its registered office at Third Floor, 22 Sackville Street, London W1S 3DN and is authorized by the Commission de Surveillance du Secteur Financier (CSSF) and subject to limited regulation by the Financial Conduct Authority (FCA). Details about the extent of regulation by the FCA are available from Vontobel Asset Management SA, London Branch, on request. The KIID can be obtained in English from Vontobel Asset Management SA, London Branch, Third Floor, 22 Sackville Street, London W1S 3DN or downloaded from our website vontobel.com/am. The KIID is available in Swedish. The MSCI data is for internal use only and may not be redistributed or used in connection with creating or offering any securities, financial products or indices. Neither MSCI nor any other third party involved in or related to compiling, computing or creating the MSCI data (the “MSCI Parties”) makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and the MSCI Parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to such data. Without limiting any of the foregoing, in no event shall any of the MSCI Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. Although Vontobel Asset Management AG (“Vontobel”) believes that the information provided in this document is based on reliable sources, it cannot assume responsibility for the quality, correctness, timeliness or completeness of the information contained in this document. Except as permitted under applicable copyright laws, none of this information may be reproduced, adapted, uploaded to a third party, linked to, framed, performed in public, distributed or transmitted in any form by any process without the specific written consent of Vontobel. To the maximum extent permitted by law, Vontobel will not be liable in any way for any loss or damage suffered by you through use or access to this information, or Vontobel’s failure to provide this information. Our liability for negligence, breach of contract or contravention of any law as a result of our failure to provide this information or any part of it, or for any problems with this information, which cannot be lawfully excluded, is limited, at our option and to the maximum extent permitted by law, to resupplying this information or any part of it to you, or to paying for the resupply of this information or any part of it to you. Neither this document nor any copy of it may be distributed in any jurisdiction where its distribution may be restricted by law. Persons who receive this document should make themselves aware of and adhere to any such restrictions. In particular, this document must not be distributed or handed over to US persons and must not be distributed in the USA. Certain information ©2019 MSCI ESG Research LLC. This report contains “Information” sourced from MSCI ESG Research LLC, or its affiliates or information providers (the “ESG Parties”). The Information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices.  Although they obtain information from sources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness, of any data herein and expressly disclaim all express or implied warranties, including those of merchantability and fitness for a particular purpose. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such, nor should it be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. None of the ESG Parties shall have any liability for any errors or omissions in connection with any data herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

About the author