The world has probably learnt by now to take every tweet and utterance by President Donald Trump with a large pinch of salt. First, he wants to buy Greenland, then he calls the Denmark Prime Minister nasty and generally it is regarded as another Trumpism; rantings of a man who spends too much time on Twitter. There are many examples of this. That is until it comes to trade, markets and stock. The past week is a case in point. When Trump told American companies to immediately start looking for alternatives to China; there was a sell-off. By Monday when he praised China for wanting to restart negotiations; stocks went up. It has resulted in what one strategist called “fragile sentiment”. The danger of yo-yo emotion is that the overall mood would eventually be negative. A bit like a partner who keeps on dumping you and then reconciling; eventually you decide it is better to stay away. And this is how UBS Wealth sees the US-China trade war; it told its rich clients to stay away from stocks. – Linda van Tilburg
By Thulasizwe Sithole
UBS Wealth Management, which is the world’s biggest wealth manager and oversees $2.5trn told its rich clients to look for alternatives to stocks and that they should cut exposure in their portfolios. The reason for this is that UBS Wealth fears that the trade war between the US and China and slowing global growth are starting to threaten world markets. The Financial Times reports that it is the first time since the 2012 Eurozone crisis that UBS Wealth is advising its rich clients to “trim its core equity recommendation to an underweight position.”
Mark Haefele, global chief investment officer for UBS’s wealth management group said in a note that “the US-China trade dispute has escalated in recent days, raising the risk of a cycle of retaliation that undermines global growth and equities markets.” Haefele said it seemed less and less likely that the trade war would de-escalate before the end of the year and he told the FT that there was a risk of global and manufacturing growth slowing down.
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President Donald Trump’s tweets and headlines on the trade war between the US and China had resulted in sharp fluctuations on markets. Another escalation of tensions between the two countries surfaced after Mr. Trump who attended a G7 meeting in Biarritz called on US companies to “immediately start looking for alternatives for China.” The result was a sell-off of stocks to safer assets such as government bonds.
The American President followed this up with a threat to increase tariffs further in October from 25-30% for $250bn of Chinese goods. In addition, he wanted to “raise a levy on an additional $300bn of Chinese imports that includes toys and clothes from 10-15%.” On Monday, Trump changed the hardline he took on China on Friday and praised the country for its efforts to re-start trade negotiations.
His comments helped to stem a sharp decline in Asia stocks and European markets were buoyed by the news. On the US stock exchange, stocks increased by 1% while the yield on the 10-year US Treasury bond remained the same at 1.53%.
Although some strategists took a pessimistic view of the impact of the trade war on stocks; UBS felt that a full-scale recession will not be triggered “because of central bank easing and healthy consumer spending, which accounts for roughly 70% of the economy.” The portfolio manager for Fiera Capital told the FT that sentiment was fragile right now. “The market is trading off… every headline and that is driving the risk-off behaviour.”
