US President Donald Trump's aspirations to further America’s exceptionalism could bode well for equity investor. — AFP
SINGAPORE: Uncertainty over US president Donald Trump’s tariff policies and their consequences mean that global stock markets could be headed for a period of greater volatility in the coming weeks, but stay invested and do not give up on equities just yet, analysts say.
Minutes after an additional 10% tariff across all Chinese imports into the United States came into effect on Feb 4, China imposed its own tariffs of 10% on crude oil, farm equipment, large-displacement vehicles and pickup trucks from the United States and 15% on US coal and liquefied natural gas.
These tariffs will take effect on Feb 10.
China also said it was starting an anti-monopoly investigation on Alphabet Inc’s Google, and added that it was imposing export controls on some metals that are critical for electronics, military equipment and solar panels.
The move risks a renewed trade war between the world’s top two economies, even as Trump suspended his threat of 25% tariffs on Mexico and Canada at the last minute on Feb 3, agreeing to a 30-day pause in return for concessions on border and crime enforcement.
“China’s retaliation to US tariffs is not a surprise given that it had warned of countermeasures,” said Vasu Menon, managing director of investment strategy at OCBC Bank.
“The Chinese will likely pursue a multipronged approach when responding to Trump’s tariffs. It remains to be seen what Trump will say and do in the coming days and this will offer a clue as to whether the trade war between the United States and China will escalate.”
Greater market volatility is expected as this tit for tat unfolds, so investors should be cautious in the short term until there is more clarity on Trump’s tariffs and upcoming immigration policies, Menon added.
While investors should manage their risks by diversifying their portfolios, Menon reckoned that there are good reasons to stay invested in stocks.
“Remember that Trump has a penchant for surprises and if he reverses or dials down on his tariffs as he has done by giving Mexico and Canada a 30-day reprieve, this could be a significant tailwind for markets,” he said.
Menon added that stock market losses bother Trump, and this could rein him in if markets fall sharply as a result of his policies. He noted that in December 2018, after a sharp sell-off in the stock market in the fourth quarter, Trump and Chinese president Xi Jinping agreed to a trade war ceasefire.
Trump is also likely to extend his 2017 tax cuts after they expire at the end of 2025.
Menon said: “This could bode well for US equities as they did in 2017 when tax cuts benefited stocks on Wall Street and other global markets.” — The Straits Times/ANN
