As US-China relations remain tense, financial professionals are figuring out ways to reduce exposure to standoffs, survey shows
(Bloomberg) — The rewiring of global trade is going to hurt the world economy, investors reckon — but they’re confident their own portfolios will come out ahead.
Those are the key takeaways from the latest Bloomberg Markets Live Pulse survey. Almost four-fifths of the 320 respondents said the recent shift toward protectionist policies — like sanctions, export controls and subsidies — poses risks to economic growth, as companies seek to make their supply lines shorter and safer, while governments freeze out rivals.
Yet investors are backing themselves to make money out of the shakeup — which goes by various names, from nearshoring to re-globalization. Almost half of survey participants said the trend is positive for their own financial holdings, while only 21% said the impact was negative. Respondents include portfolio managers, traders, economists, retail investors and other Bloomberg News readers.
The great trade rethink began with US-China tensions under then-President Donald Trump. It gained momentum in the early days of the pandemic, as countries worried they’d become dependent on others to provide vital goods. Russia’s war in Ukraine added urgency to the drive to shield domestic industries and diversify supply networks.
All of this raised concern that the global economy is fracturing into rival trading blocs. That outcome could slash 5% — or about $5 trillion — off of world GDP, according to research by the World Trade Organization cited on Friday by the group’s Director-General Ngozi Okonjo-Iweala.
“We need to avoid more protectionism,” Okonjo-Iweala told the International Monetary Fund’s annual meeting in Morocco. “The free flow of trade is what we need if we really want our economies to move.”
For now, investors are finding ways to bet on the new patterns. On currency markets, the biggest expected winner over the next year is the Mexican peso, according to 52% of MLIV Pulse respondents — putting it well ahead of the Chinese yuan and the Korean won. Mexico is getting a wave of investment, as companies in the US and Canada look to shorten supply lines and reduce their reliance on China.
What money managers seem to have realized is that such volatility brings opportunity — and that long-held doctrines espousing free trade, in capitals and corporate boardrooms, are being revised rather than scrapped entirely.
“Investors understood that what was happening was instead an evolution along regional lines,” said Sahil Mahtani, a strategist at investment firm Ninety One. “They were able to capitalize on opportunities related to trade wars, sanctions and near-shoring.”
Governments worldwide have imposed more than 11,000 policies to manage trade since 2019 — a sharp jump from the previous decade — and about four-fifths of them are “harmful” in the sense that they restrict foreign companies, according to a tracker maintained by the Global Trade Alert watchdog.
Part of that comes from efforts by the US and Europe to reduce reliance on China Inc. and find suppliers among their neighbors. That’s likely to continue, and money managers are adapting, said Kim Forrest, chief investment officer at Bokeh Capital Partners LLC.
“How do investors make money in this sort of economic volatility? The old fashioned way – research and find companies that understand the challenges, and have processes that actually take advantage of these changes,” she said.
Trump imposed tariffs on more than $300 billion of imports from China, and the Biden administration has maintained them. In the latest sign of elevated tensions, the US is seeking to strengthen controls on selling graphics chips for artificial intelligence applications and advanced chipmaking equipment to Chinese firms.
Asked who’s winning the Washington-Beijing trade contest, almost 40% of MLIV Pulse respondents said the US is ahead, while 24% gave the advantage to China. Others wrote in their own answer, with many saying that everyone loses in trade wars.
As for stock-market impact, investors were almost evenly split on whether the tensions are holding back US equities – but there was a much clearer view about the impact on Chinese stocks, with 81% saying equities there were suffering as a result.
Presidential elections in the US next year could herald a new phase. Trump, the Republican front-runner, has floated imposing a 10% tariff on all American imports. Most investors see that plan as bad for US stocks, Treasuries and the dollar, the MLIV Pulse survey showed.
Biden has worked to keep allies on board with his China policy. US and European Union leaders seek to announce a deal in Washington on Friday over steel and aluminum. The goal is to resolve their own differences and take a more unified stance against Chinese steel imports.
Another hot-button issue is electric vehicles – a market that China increasingly dominates with the help of government subsidies. US and EU efforts to reverse that trend by imposing trade barriers will likely backfire, MLIV Pulse respondents said.
Read full results: More Trump Tariffs Would Hurt Stocks, Bonds: MLIV Pulse Results
The MLIV Pulse survey of Bloomberg News readers on the terminal and online is conducted weekly by Bloomberg’s Markets Live team, which also runs the MLIV blog. This week, the survey asks: Will Bank of Japan bring more volatility to global bond markets? Share your views here.
–With assistance from James Mayger and Leonid Bershidsky.
(Updates with new China curbs, word cloud)
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