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Research Market strategy
by Swissquote Analysts
Live Analysis

US-China deal to unlock opportunity in Emerging Markets

1

The phase-one trade deal between the US and China has finally been signed and sealed. Although the last minute changes suggested that the tariff cuts on Chinese exports would not take effect before the US presidential election in November, the prospects of an improved relationship between the US and China will likely restore the investor confidence and unlock the potential of emerging economies for those craving for higher returns in exchange of a higher risk.
As 2019 has been a difficult year for the world economy, investors want to believe that the worst is now behind. Although the US and China have still a long way to go before reaching a comprehensive trade deal, the progress that has been made over the past couple of months has been enough to get investors, exhausted with bottom-rock interest rates and ultra-low yields, moving towards new investment opportunities.

In this respect, the end of 2019 has already seen an increased appetite for big emerging market stocks, when investors visibly started building up their strategies on a more optimistic turn of events.

The iShares BRIC 50 index which tracks the fifty largest and most liquid company securities from Brazil, Russia, India and China rallied more than 15% since December to reach a record high, as Swissquote’s selection of BRIC leaders has outperformed the MSCI Emerging Markets index in the fourth quarter. The prospects of improved Chinese and global demand, recovery in commodity prices, along with a better risk taking should sustain and increase the capital inflows towards the big BRIC stocks. In a similar logic, we also expect our China and Brazil recovery portfolios to continue performing nicely.

But not only. As the heavy clouds over China dissipate slowly, investors could look for opportunities beyond the cautious universe of the large caps. Henceforth, if you missed the bullish train on big EM stocks, you may be in a sweet spot to invest in China’s fast growing high-tech, high-value industries.

These industries, which remained under the shadow of the US-China tensions in 2019 amid the blacklisting of Huawei Technologies and other Chinese tech companies in the US gave cold feet to global investors, remain among the most promising investment fields in the world. Hence, we have solid reasons to believe that 2020 would finally offer our China’s Dragons theme the attention it deserves. Improved global vibes, combined to a solid support from the state driven ‘Made in China 2025’ plan prepare a solid ground for Chinese hi-tech, innovation stocks to extend the recovery that started a month ago and to thrive.

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