US China shares may have the least to gain
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Either the beginnings of a breakthrough resolution in the U.S.-China trade conflict will be announced soon, or investors are about to be handed a big disappointment.
Likewise, global markets have varied scope to extend gains made in the first couple of months this year in the event of a positive outcome of talks, and differing room to absorb losses if a deal remains elusive.
- A limited formal agreement could emerge from a top-level summit at the end of the month with a focus on:
- The auto sector; including a speeded-up timetable for removing foreign-ownership limitations and reduced tariffs
- Stepped-up purchases of U.S. goods; possibly including $18bn natural gas purchase
- But critical issues remain unresolved, chiefly:
- How China handles intellectual property and other industrial policy matters
- A dispute resolution plan
- Aside from the mooted date for Trump-Xi talks, there is no detailed timeline for further negotiations, underlining deep the uncertainty that remains
- Consequently, a series of deals , requiring many more months to complete is likely
Outlook for global shares mixed due to trade talks
- Meanwhile, China’s stock markets are outperforming most global regions so far this year (Shanghai/Shenzhen index is up 26%) raising the question of whether that can continue, despite anticipation of official stimulus
- Most major European and U.S. indices have managed to rise less than half the amount of their Chinese counterparts; some, like the FTSE even less
- Stock market forward valuations and earnings expectations should begin to exert an influence
- U.S. corporate earnings are forecast to rise just 5.3% vs. 2018’s 24.4%, according to FTSE Russell research, as the impact of a boost from tax changes fades
- European companies, excluding the UK, are expected to see profits rise 9.1%. A rise of 13.9% is forecast for emerging markets, according to MSCI
- Given that global corporate earnings expectations for the year are modest, a favourable trade talks outcome could yet provide more of a lasting boost for markets other than U.S. and China’s where ratings are relatively elevated
| Forward P/E | |
| S&P 500 | 16.6 |
| NASDAQ COMP | 20.09 |
| DAX | 12.56 |
| FTSE 100 | 12.48 |
| CSI 300 | 17.84 |
| NIKKEI | 15.10 |
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