China should still be a top pick for global investors despite trade tensions, UBS says

Catherine Cai, the executive vice chairman and chairman of Greater China’s investment arm for UBS, has given a bullish assessment of the world’s second-largest economy despite the ongoing trade conflict with the U.S.

Speaking at East Tech West in the Nansha district of Guangzhou, China, Cai said she expects to still see “moderate growth” in the Chinese equity market next year and suggested investors should keep the country’s assets as part of their portfolios.

“I still believe, and the UBS house view also believes, that China (is) still representing the most investment opportunities in the world. Maybe we can conservatively say one of the most opportunities in the world … We still think the next year will see moderate growth in the equity market as well as the GDP (gross domestic product) growth,” she told CNBC’s Geoff Cutmore Wednesday.

Her comments come as a trade war has escalated between the U.S. and China, the world’s two largest economies, and disrupted the markets after the President Donald Trump imposed 10 percent tariffs on $200 billion worth of Chinese imports on Sept. 24, and those duties will rise to 25 percent on Jan.1, 2019.

Trump has since suggested in a Wall Street Journal interview this week that he could place a 10 percent tariff on iPhones and laptops. He also said during the interview that it is “highly unlikely” he will delay an increase in tariffs from 10 percent to 25 percent on Jan 1. Trump and China’s President Xi Jinping are due to meet at the G-20 summit in Argentina this weekend and it’s hoped the two will come to an agreement.

Cai was asked her opinion on the impact it’s having on the markets in China. She said: “I think every article, people read different views on what is going to happen three days from now … I think everybody hopes the two leaders will reach some kind of agreement because it will be good for the world economy, particularly very positive for China and the U.S.,” she said.

“The market has been very fragile and in the past two weeks the whole market both U.S. and China has been further weakening. So the market is waiting for good news and nobody wants to see bad news from these two leaders meeting,” she added, but said the market wants to see something specific and not just hand shakes between the two leaders.

Regarding Chinese assets, Cai added that global equity investors should perhaps be shifting to more stable parts of the economy during this trade turmoil, suggesting that growth stocks and technology could see more volatility.

“A lot of people mention the trade war will bring more damage to the China market but not necessarily. Any war is going to damage both sides,” she added.

“In past two weeks, the U.S. market has turned very soft, a lot of big tech names have lost their market value in a very significant way. Take for example Apple have lost $200 billion in market valuation. Also, a lot of economic indicators from the U.S. demonstrated the potential softening for the upcoming years … So I hope the U.S. government also realize the trade war, more or less, is also going to impact the U.S. economy and not only China’s economy,” she added.

Cai was also asked about fintech (financial technology) developments in China. It’s an area that has been hampered by government policy after crypto exchanges and initial coin offerings (ICOs) were banned in the country in 2017. However, whilst the government is not endorsing crypto, it wants to be a frontrunner in blockchain technology, as CNBC reported from East Tech West Tuesday.

“I think there is a lot of potential for China’s fintech industry to develop … There is a lot of things that can be developed, to be done in this sector,” she said.

On what opens the gate to get the ball rolling for fintech, Chi said it’s less about valuation and more about regulatory concerns. “Everyone is waiting for more clarity and transparency on the regulation front in the fintech sector … We hope next year we will have better certainty,” she added.

Cai said her outlook for China in 2019 depends on what happens with the trade agreement between the U.S. and China when Trump and Xi meet at the G-20 summit in Argentina this weekend.

“Regardless, 2018 has been (a) very tough year for the equity markets and the bond markets, and also for China’s economy. For 2019, we are expecting, we hope we will be more stabilized on both bond and equity markets. However, that’s depending on the trade tension between these two countries. Regardless, China is a huge market and we still have a lot of confidence,” she said.

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