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Investment opportunity grows from Trump’s trade war

The three-month truce between China and the US in their trade battle gives a window of opportunity to investors eyeing emerging markets.

The firm noted that the emerging markets sector has sold off sharply over the course of the year, riled by the US Federal Reserve’s interest-rate hikes, the strength of the US dollar, shaky fundamentals in many EM countries and slowing growth in China.

The growing trade war added to the worries about the Chinese economy.

Eaton Vance says given the stay of execution from Trump and Xi, EM investors shrugged off those concerns, at least temporarily. The firm however expects the boost to be short-lived.

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“With Trump and Xi effectively declaring a truce in their trade war, the EM sector has been given some breathing room,” Eaton Vance noted.

“We expect that the market will reward countries that use this reprieve – however long it lasts – to shore up their fundamentals."

EM countries such as Turkey, Argentina, Sri Lanka, Zambia and Lebanon all have displayed weakness this year, according to Eaton Vance.

China’s slowdown was said to cast a slowdown on EM issuers who are trade-dependent on the country.

The fund manager added that tensions between the US and China have not dissipated, with negotiators having 90 days to agree to structural changes regarding forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and theft, services and agriculture.

Existing challenges with Fed normalisation are still present according to Eaton Vance, also adding the Fed’s data-dependent approach is likely to still lead to further rate hikes in the next year.

Investment opportunity grows from Trump’s trade war
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