Monday, 27 May 2019

Escalation of US-China trade war could be “buying opportunity” for stocks

The S&P 500 fell 1.2 percent last week, its third consecutive weekly decline as concerns over the US-China trade war continued to plague markets.

“The odds of a deal are rapidly receding,” Yale University senior fellow Stephen Roach told CNBC last week as tit-for-tat tariffs escalated.

Still, some analysts remain sanguine.

Analysts at Goldman Sachs led by chief US economist Jan Hatzius wrote that if the US imposes tariffs on another US$300 billion worth of Chinese imports, stocks could pull back by 4 percent.

However, Goldman's base case is that a trade deal is reached, along with a “staggered reduction” in the current tranche of tariffs, which could be followed by a 4 percent rise in stocks.

Chinese stocks could also gain, according to some analysts.

Dai Ming, a Shanghai-based fund manager at Hengsheng Asset, said that he is “cautiously optimistic that an agreement on trade will eventually be reached between the two nations” and this would create “a buying opportunity both in the short and medium term”.

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