US-China trade war: A framework for thinking about new tariffs

In early August, the US government unexpectedly announced tariffs on the remaining US$300 billion of Chinese imports. These levies, which could impact the consumer, were scheduled to begin on 1 September. However, the start date for duties on certain goods was deferred to 15 December in order to mitigate the potential impact on Black Friday and Christmas sales.

This game-changing development alters our earlier, more bullish view of the markets. In addition to our traditional thoughts about the impact of tariffs on the global economy, we are now considering additional factors that create nonlinear headwinds to growth. Furthermore, we now expect the Fed to cut interest rates by 50 basis points in September with the potential for more further reductions down the line.

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Market Note ─ Tariff threat trips the circuit breaker, setting the scene for a 50 basis points Fed rate cut in September

On 1 August, the Trump administration announced a new set of tariffs on the remaining US$300 billion of Chinese goods to be imposed on 1 September. The US-China trade war further escalated on Monday with the US Treasury Department designating China as a currency manipulator and the US dollar/Chinese renminbi (USD/CNY) rose above 7.00. Equity markets plunged around the world. Frances Donald, Chief Economist and Head of Macroeconomic Strategy, explains why this phase of the trade war is different.

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Market Note ─ The Fed’s next chapter: this is no regular interest-rate cut

The US Federal Reserve (Fed) trimmed rates by 25 basis points (bps), as has been widely expected. Frances Donald, Chief Economist and Head of Macroeconomic Strategy, believes that the Fed’s going to cut at least once more, probably in September, and the 2016/2018 hiking cycle is now over. Donald also explains why Wednesday’s interest-rate decision is far more significant than it may initially seem.

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Market Note ─ G20 Meeting Recap: Seven Macro Takeaways

The G20 meetings in Osaka have produced a moderate de-escalation of trade tensions between the US and China. In this market note, our Chief Economist and Head of Macroeconomic Strategy Frances Donald identifies the seven macro takeaways from the meetings.

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The fog of uncertainty has thickened

Generating economic forecasts is never straightforward, and in 2019 the task has become even more challenging. Our Asset Allocation Team believes that three evolving themes will dominate the global economy in the second half of the year: trade tensions, Fed monetary policy, and the impact of China's stimulus. All three issues are shrouded in a fog of uncertainty.

An era of protracted trade tensions now seems likely, shaving growth in China, the US and Europe, and hitting US consumers hard. Meanwhile, investors who are now fixated on the Fed’s next interest-rate cut might be missing two bigger pictures.

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Why China's rising tide may not lift EM boats

Traditionally, an improvement in the outlook for China has inferred there will be important spillover effects on the global economy, particularly emerging markets in Asia. However, our Asset Allocation Team believes that the current Chinese stimulus and resulting stabilisation is different – spillovers into emerging markets in Asia are likely to be more limited and with a longer lag than we have seen in past cycles.

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Investment Note: Sino-US trade tensions enter a new phase

After months of apparent progress in bilateral trade talks, the US unexpectedly raised tariffs on US$200 billion of Chinese imports to 25%, effective 10 May 2019, and added a threat to place tariffs on all Chinese imports. The Chinese government responded by announcing 25% tariffs on US$60 billion of US imports from 1 June 2019. The escalation in tensions between the world’s two biggest economies has left investors wondering what will come next. In this investment note, Ronald Chan, Chief Investment Officer (CIO) of Asian Equities (ex-Japan), lays out a basic roadmap to help investors understand the possible scenarios that could lead to a resolution of the current dispute.

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Market Note: Latest tariff threat could derail a Sino-US trade deal

On Sunday 5 May 2019 (US time), US President Donald Trump signalled his intention to increase tariffs on US$200 billion of Chinese imports from 10% to 25% starting Friday 10 May 2019, while another US$325 billion of untaxed goods could face 25% duties “shortly”. The warning comes ahead of this week’s scheduled talks between the US and China, which market observers still hope will result in the finalising of a trade agreement. In our market note, the investment teams from Manulife Asset Management share their views on this latest development.

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FLIGHT OF THE DOVES

When the US Federal Reserve turned dovish in January by revealing that it would be “patient” before introducing any further interest rate rises, global central banks soon followed suit. While this accommodative monetary stance has helped to extend the Goldilocks environment, it still pays to be wary of the risks that remain.

That’s why it’s essential to be aware and remain agile like a dove. Read the insights from our Asset Allocation’s Macro Strategy Team.

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MAKING SENSE OF THE MARKET REBOUND

The start of this year saw the return of risk-on sentiment as investors welcomed a newly dovish Fed and signs the Chinese economy is over the worst – but geopolitical tensions and the growth outlook are lingering concerns.

Would strengthened stimulus from China and a solid economic growth in the US economy be enough to stabilise global markets? Our Asset Allocation Team shares latest views.

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MARKET NOTE: THE FED STRIKES A DOVISH TONE

Following a two-day meeting, on 30 January (US time) the Federal Reserve put rates rises on hold and said it will be “patient” in determining any future interest-rate moves, as well as signalling flexibility on the path to shrinking its balance sheet. In this market note, Megan E. Greene, our global chief economist at Manulife Asset Management, believes that the Fed has turned overwhelmingly dovish, and outlines what she thinks could happen next.

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2019 OUTLOOK: THE YEAR OF THE PIG - WILL IT FLY?

In the new year, we believe the headwinds that have battered the equity markets in 2018 may subside, with some actually turning into tailwinds. Emerging markets (EM), which bore the brunt of the global equity correction in 2018, may be poised for a rebound as its growth differential with Developed Markets widens.

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MARKET NOTE: UNCERTAINTY AND FLATTENING YIELD CURVE SPARK US MARKET CORRECTION

The flattening yield curve (US Treasury) caught market attention and the US stock market adjusted sharply on Tuesday (US Time) − with the S&P 500 index tumbling more than 3%. In this market note, our investment teams from the US share their latest views.

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MARKET NOTE: CHINA AND THE US AGREE TO HALT NEW TARIFFS FOR 90 DAYS

On 1 December (Argentina Time), China and the US agreed to a ceasefire to keep their trade war from escalating with a promise to halt the imposition of new tariffs for 90 days. In this market note, Ronald Chan, Chief Investment Officer, Equities, Asia (Ex-Japan), believes the markets have probably seen the peak of trade frictions between the two countries. Markets and sectors that have been most impacted should react positively to the outcome in the near-term, in particular, China A-shares, North Asian bourses, and exporters.

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PORTFOLIO INSIGHTS: The compelling case for Asian fixed income

Asia’s fixed income markets today offer investors compelling opportunities that were not available as recent as a decade ago. Indeed, investors are now not only holding sovereign and corporate bonds from developed economies such as Singapore and Korea, but also increasingly in emerging economies such as Indonesia and India. More importantly, China is fast emerging as a key player in the arena.

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WEALTHSTYLES: AMIDST THE VOLATILITY, SOME WORDS OF WISDOM

Volatile markets are nothing new to investors, but there are ways to navigate them properly – learn from the experts and adopt the right mentality for overcoming investment bias.

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A MODERATION IN SINO-US TRADE RELATIONS EXPECTED AFTER US MID-TERM ELECTION RESULTS

On 6 November (US Time), the United States held mid-term elections. Various media reported that the Democrats won a majority of seats in the House of Representatives, while the Republicans maintained their majority in the US Senate. In this market note, Ronald Chan, Chief Investment Officer, Equities, Asia (Ex-Japan), gives his views on how the results of the US mid-term elections will affect the trajectory of US-China trade relations and Asian markets moving forward.

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MARKETS IN THE FALL

Global equity markets fell in early October over interest rate concerns and continued macroeconomic headwinds. Volatility looks likely to continue, but:
   •   The bad news has mostly been discounted.
   •   Some fundamentals remain supportive.
   •   Global growth looks healthy despite some downward revisions.
Stay calm, stay invested. Opportunities remain for those who know where to look in 2019.

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FURTHER THOUGHTS ON THE SELL-OFF IN US EQUITY MARKETS

Market volatility continues in October. A sell-off that started in early October deepened on Wednesday in US equity markets: the Nasdaq lost 4.4%, while the S&P500 was down 3.1%. In this market note, our global investment teams offer their views on this round of sell-off and the future market outlook. Our economists and macro strategists do not see the potential for a recession in the US in the near term.

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MARKET NOTE: OUR THOUGHTS ON THE LATEST GLOBAL MARKETS SELL-OFF

On 10 October 2018, US stocks suffered their worst fall since early February. The sell-off hit broader equity markets in Asia – bourses in Taiwan, South Korea and China registered deep losses on Thursday.

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PHILIPPINE ECONOMY TO BENEFIT FROM SYNCHRONIZED GLOBAL GROWTH MOMENTUM

Manulife Asset Management and Trust Corporation believes that the Philippines is well positioned to reap the benefits of synchronized global growth, and that it will continue to contribute to Asia’s growing economy in 2018.

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"TRADE TANTRUMS" WORRY INVESTORS. HOW SERIOUS ARE THEY?

The recently announced US trade tariffs have raised global trade tensions and created some market uncertainty. We put the ongoing trade tensions in perspective, as we help investors navigate through market volatility..

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INVESTMENT NOTE: IMPLICATIONS OF RECENT MARKET VOLATILITY

Global economic data continues to impress: US consumer confidence and German business sentiment have hit new highs. China’s economy has stabilised, and after the successful 19th Party Congress and visit by US President Donald Trump, the country is focusing on upgrading the economy.

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MARKETS CONTINUE RALLY INTO THE NEW YEAR

Senior Asia Strategist Geoff Lewis examines the key issues that investors should follow in the new year. In particular, he looks at how historic tax reform in the US is likely to boost its economy and have a positive spill over for Asia.

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Positive economic data sets stage for 2018

Global economic data continues to impress: US consumer confidence and German business sentiment have hit new highs. China’s economy has stabilised, and after the successful 19th Party Congress and visit by US President Donald Trump, the country is focusing on upgrading the economy.

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An “Indian Summer” for global markets!

Global markets posted strong performance in September driven primarily by economic fundamentals, with developed markets (DM) taking the lead. China’s markets have performed well ahead of the upcoming 19th Communist Party Congress in October, with low levels of volatility. In this month’s Monthly Macro View, Geoff Lewis leads investors through the latest market developments.

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Fed announces exit from QE: Implications for EM and Asia

On 20 September (US time), the Federal Reserve announced a gradual exit from quantitative easing policies adopted after the Global Financial Crisis. Geoff Lewis, Senior Asia Strategist, Manulife Asset Management believes that the Fed’s exit is a watershed moment, and one that will likely be successfully navigated. For Emerging Markets (EM) and Asia, the decision’s long-term impact should be muted, although there may be short-term hiccups. More importantly for investors, we believe a global base case of low growth, low inflation, and low rates over the next three to five years remains positive for EM and Asian equities and debt.

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Stock markets struggle but stay afloat

It’s been a challenging month defined by political tensions (with North Korea and within the US), and concerns around issues like potential quantitative easing tapering in Europe and a possible debt ceiling crisis in the US. But it’s not all been bad. The global economy remains strong with all 45 OECD-tracked countries set to grow this year.

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Will markets weaken in August?

Will markets weaken in August? There are justified concerns surrounding the strong euro, global economic momentum peaking, and increased volatility on the horizon besides geopolitics and North Korea. Lewis believes the chance of a US market correction is increasing. Even if markets do cool significantly in August or September, it could prove a buying opportunity, as on a 12-month horizon emerging markets’ fundamentals still appear sound.

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Markets in June: A flat end to a stupendous first half

The first half of 2017 has been kind to investors, to say the least; equity returns have far exceeded the modest expectations they held in January.

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India's equity valuations build on fundamentals and rising domestic equity savings

India's equity markets have registered strong performance as the NSE Nifty 50 Index ("Nifty") is up 24% year-to-date (USD), which outstrips both MSCI Asia and MSCI Emerging Markets. Valuations have increased along with the market's rise: the Nifty's current one year forward price to earnings (P/E) ratio is 16.5 times, about 10% higher than its 10 year median.

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Moody's downgrades China and Hong Kong

On 24 May 2017, Moody's Investors Service (Moody's) downgraded China's long-term currency and foreign issuer ratings from Aa3 to A1 (stable outlook) In addition, Hong Kong's soverign rating was downgraded from Aa1 to Aa2 (stable outlook) on the following day. Overall, the price reaction was generally muted, as the downgrade was sidely expected by most market participants, whilst some investors took the opportunity to buy on dips.

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French Presidential Election: A Market-Friendly Outcome, But Issues Remain

The outcome of the French Presidential election will no doubt be greeted by investors with a sigh of relief. Emmanuel Macron, the market's preferred candidate, has won Sunday's vote. In this note, our Head of Europe, Autralasia and Far East (EAFE) Equities David Hussey examines if Mr. Macron's victory could put to bed lingering fears about the outlook for European equities.

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Comment on Fed Rate Hike

Members of the Federal Open Market Committee (FOMC) voted for 25 basis points rate hike, raising the target range for the federal funds rate (Fed’s benchmark rate) to “0.75% to 1%”. In this investment note, Manulife Asset Management Chief Economist Megan Greene examines why economic data justified a rate hike and its implications for the economy.

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Steady the ship, few surprises at China's NPC Work Report

China's national legislature, the National People's Congress (NPC) held its annual meeting in Beijing on 5 March, the meeting will convene for roughly two weeks. For investors, one of the most important item is Premier Li Keqiang's Work Report (the Work Report).

Although the Work Report did not provide any surprises, Manulife Asset Management Senior Asia Strategist Geoff Lewis thinks it crystalized numerous policies announced earlier: China’s economic transition toward consumption will continue, policy makers will continue to focus on economic stability, while doing more to manage long-term financial risks.

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India Union Budget 2017-2018 and RBI rate decision

On 1 February 2017, India’s Finance Minister presented the government’s 2017-2018 Union Budget to parliament. The budget offers the government’s estimates of the country’s financial health and fiscal priorities for the upcoming year. On 8 February 2017, the Reserve Bank of India (RBI) announced it would keep interest rates on hold. In attached Investment Note— India Union Budget 2017-2018 and RBI rate decision, Manulife Asset Management’s India Equities Specialist Rana Gupta shares his latest views towards the two events.

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