It is incredibly difficult to recognise entry points for markets or stocks: there is always a good reason for something to seem cheap but at the same time, a plausible cause for it to get cheaper.
With threats of a trade war echoing in our ears and investors smarting from an unexpectedly tough first quarter, media attention has focused on the potential ‘buying opportunity’ in Asian equities, and against that backdrop we consider the outlook.
Global stocks with the highest exposure to China have significantly underperformed since the start of March. Last month Trump announced tariffs on Chinese steel and aluminium and followed it up with wider tariffs in response to claimed Chinese intellectual property theft. After China announced its own tariffs in response, senior members of the Trump administration suggested the US might walk back their threats: commerce secretary Wilbur Ross said he expected the spat to end in negotiations, and newly-appointed director of the national economic council Larry Kudlow said that agreement may come before the tariffs are due to come into force in May.
A weakening of the US position and an invitation to the negotiating table would be entirely in keeping with the past behaviour of the Trump administration. In January Trump was threatening to nuke North Korea on Twitter, yet now he is preparing to sit down and talk to its leader. It is a strategy he has followed in numerous areas: throw around threats, talk tough, and then negotiate back to a more reasonable mid-ground.
However, there’s no guarantee that this time he won’t stick to his guns, and until a clear outcome emerges – volatility is likely to remain extreme...
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