ADVERTISEMENT

U.S.-China Deal: JPMorgan Sees Stocks Upside, BofA on Yuan

U.S.-China Trade Deal: JPM Sees Stocks Upside, BofA Watches Yuan

(Bloomberg) -- The U.S. and China agreed Friday to the contours of a partial trade deal that Presidents Donald Trump and Xi Jinping could sign as soon as next month. But as shown by the reports Monday that China wants more talks before signing an agreement, there’s still a lot for investors to chew on.

Questions remain on everything from whether the deal will actually be completed to the import taxes on all remaining Chinese shipments due to start Dec. 15.

Here are some thoughts from market strategists:

Stuart Kaiser, head of equity derivatives research at UBS Securities LLC in New York

The Nasdaq-100 Index is “the preferred way to hedge.” The DAX Index, or perhaps the iShares MSCI Emerging Markets ETF (ticker EEM) and iShares China Large-Cap ETF (FXI), are “the best way to position for positive trade outcomes.”

Dennis Debusschere, head of portfolio strategy at Evercore ISI in New York

“The trade détente reduces disinflation risk and alleviates headwinds to business sentiment at a time when the inventory drag is already set to fade. That combination (trade détente + inventory drag fading) will result in some re-weighting of cyclical multiples relative to defensives.”

John Normand, head of cross-asset fundamental strategy at JPMorgan Chase & Co. in New York

With uncertainties carrying over into 2020 plus a lack of “extreme cheapness” and aggregate positioning close to neutral, “there is still a peace dividend to be earned” but “it will probably be smaller than what previous turning points have delivered.”

Read more about John Normand’s take here.

Matt Maley, equity strategist at Miller Tabak in Newton, Massachusetts

The U.S.-China relationship has changed, and “until the global economy goes through the process of adjusting to this new reality, global growth will face headwinds. That makes the U.S. stock market more vulnerable to a correction, and gives it less upside potential.

Investors will need to be good stocks/group/asset-class “pickers” to reach their investment goals. If we are wrong, we should get the signal from the key leadership groups we’ve been harping on for months: the small caps, transports, and (especially) the chips.”

Jeon Seungji, currency analyst at Samsung Futures in Seoul

“The atmosphere is likely to be risk-on for now as there is not only trade-related optimism but that for Brexit as well.”

“Still, players won’t be able to keep racing on risk appetite as we don’t know yet whether the December tariffs will also be lifted or not. Risk rally in generally all emerging markets will likely be capped.”

Min Dai and strategists at Morgan Stanley in Hong Kong

“Before the trade deal, investors’ conviction was low and positioning was light. The light positioning in emerging-market foreign exchange could provide a good backdrop for EM to rebound.” Recommended trades include:

  • Short USD/CNH, targeting 6.95
  • Long AUD/JPY at market, targeting 80
  • Short USD/INR 3m NDF, targeting 69.7

Claudio Piron, Emerging Asia fixed-income/FX strategist at BofAML in Singapore

“The key psychological support level in focus will be at USD/CNY 7.00 which is aligned to the 100-day moving average. Given the pullback in USD/CNY in response to this initial trade agreement and the prospect of any CNY depreciation coming under close scrutiny ahead of a November 16/17 signing; our existing USD/CNY year-end forecast of 7.50 is too aggressive. This would imply a 6% depreciation in 4Q. We revise our year-end USD/CNY forecast to 7.30, but maintain our year-end 2020 forecast at 7.60.”

Damien Loh, chief investment officer at Ensemble Capital Pte. in Singapore

“Given the scarcity of details and tangible agreements, markets look to have priced in all the positive news already. I anticipate continual grind into the risk-on direction as and when China and the U.S. agree to more specifics over the next few weeks and for the details to be totally fleshed out ahead of the Xi-Trump meeting in November.

Even in the most positive result it would be hard for USD/CNH to go below 7.0.”

--With assistance from Lilian Karunungan, Yumi Teso, Tomoko Yamazaki and Rita Nazareth.

To contact the reporter on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Ravil Shirodkar

©2019 Bloomberg L.P.