Tariff fears threaten to wreck markets recovery: Investors react

  • Economy
  • Wednesday, 11 Jul 2018

NEW YORK: Just when investors thought stock markets across the globe had brushed aside trade war concerns, the Trump administration introduced a list of $200 billion worth of Chinese goods set to face new tariffs, triggering a fresh wave of selling.

S&P 500 Index futures dropped as much as 1.1 percent. An MSCI measure of emerging-market stocks fell for the first day in four, while the Chinese yuan resumed declines and the Korean won followed suit. Among major currencies, the greenback strengthened while the Australian and New Zealand dollars took a beating.

“It’s obviously a dark day -- how we position ourselves for the next six months to a year is a big question,” Yang Liu, chief investment officer at Atlantis Investment Management Ltd., said in a Bloomberg TV interview. 

Investors should “hold 30 to 40 percent cash, buy 10 to 20 percent bonds. And then you’d allocate to healthcare, H shares and some good IPOs which are being rushed into Hong Kong.”

Here’s what strategists said about the new tariff list and its impact on markets:

U.S. Isolationism

Paul Donovan, chief economist at UBS Global Wealth Management:

• “The reality of taxes may matter less than the threat of U.S. isolationism. Companies with U.S. operations that cannot easily be moved out of the U.S. face the risk of having part of their production cut off from the global trading system.”

• “If these taxes are actually imposed, and assuming an equivalent response, the risk of a U.S. trade war with the rest of the world rises.”

China at Risk

Michael Every, strategist at Rabobank:

• “China has promised to respond, but cannot do so on goods alone given its relatively smaller import bill.”

• “With U.S. tariffs on this new scale, Chinese exports could take a significant hit. That would see a deterioration in the country’s trade surplus and balance of payments position unless it can find a replacement market, which is unlikely.”

Actions vs Rhetoric

Hannah Anderson, global market strategist at JPMorgan Asset Management Ltd.:

• “We have now seen actions, rather than just rhetoric, on U.S. China trade in a broad sense”

•  The earliest the tariffs could go into effect is Sept. 1, “right when fall campaign season kicks off”

• “The initial reaction to trade developments, as with most situations, is sharp and then investors take a breath and refocus on what drives returns,” which will be a “much more company specific question than it once was”

Reasons to Ignore

Kristina Hooper, chief global market strategist at Invesco Ltd.:

•  “What we have seen repeatedly this year is that investors are looking for reasons to ignore trade concerns, so I expect attention to turn back to earnings relatively quickly”

• Even so, investors can’t ignore the protectionism threat on the global economy. “This problem is not going away but is instead metastasizing”

China Retaliation

Suan Teck Kin, head of research at United Overseas Bank Ltd.:

•  China may impose higher tariffs on U.S. products so it can match the proposed 10 percent tariffs

•  “Whichever way, the markets will take it negatively after the calm over the past few days”

Glass Half Full

 Paul Nolte, a portfolio manager at Kingsview Asset Management in Chicago:

• “The markets will be in a twist for a day or two and then begin looking at the glass as half full rather than half empty”

•  The longer term impact of tariffs combined with a Fed hike could “provide the fuel to push the U.S. economy into a recession later in 2019” 

Not a Surprise

 Michael O’Rourke, chief market strategist at JonesTrading:

•  This “will serve as a reality check for the market, reminding investors to reconsider how aggressive they want to be”

•  “The $200 billion in potential additional tariffs is not a surprise,” since Trump warned that this could happen, he said. Equity markets will recognize this as “a much bigger problem” if the tariffs are instituted

Emerging Market Currencies

Tsutomu Soma, general manager for fixed-income trading at SBI Securities:

•  The U.S.’s release of a list of targeted products for tariffs is negative for emerging-market sentiment, but market participants are getting used to it, which is why market moves so far are limited

•  “This issue keeps concerns and uncertainties surrounding global trade issues alive, so it’s negative for the emerging markets”

Earnings Adjustments

Tim Ghriskey, chief investment strategist at Inverness Counsel:

•  Companies will begin to discuss in their earnings reports how the tariffs will impact their earnings going forward“

•  We could see earnings estimates lowered because of the potential for additional tariffs. The U.S. Markets won’t react positively to that”

Back on the Defensive

Stephen Innes, head of trading at Oanda Corp.

• This is “a list and not an actual tariff, so lots to be ironed on this one, Regardless, it will put the markets back on the defensive for the time being”

• “Indeed, when the going gets tough, the tough get going”

Earnings Outweigh Tariffs

Walter Hellwig, senior vice president at BB&T Wealth Management:

• We’ll see a bump in the road short-term, but fundamentals will remain intact, the economy is still strong that that’s what’s important for stocks. The earnings season is upon us, and I think the strong earnings are going to outweigh tariff concern.” - Bloomberg


Economy , trade war