Delinking of US and China economies to weigh on Asian equities in 2019, says UBS
- Chinese equities could decline by 20-25 per cent, US equities could decline by 5-10 per cent and the US dollar might appreciate against the euro if trade war were to worsen, according to outlook for year ahead
A long cycle of conflict will accompany the gradual delinking of the world’s two biggest economies, despite an apparent thaw in relations between the United States and China at the G20 summit in Argentina recently, according to a report on the outlook for the year ahead released by Swiss bank UBS on Thursday.
The uncertainty this brings will weigh on Asia’s investment outlook in 2019. “Economic considerations may be given less priority in future policy setting. As such, investors should prepare for relations between the two powers to continue affecting markets,” according to the report.
China, Hong Kong shares tumble amid growing worries about US-China relations after arrest of Huawei CFO Sabrina Meng Wanzhou
In a key downside scenario presented in the report, analysts said they expected Chinese equities to decline by 20-25 per cent, US equities to decline by 5-10 per cent and the US dollar to appreciate to about 1.1 against the euro, if the US-China trade war induces a slowdown in China and leads to considerable uncertainty and a re-routing of global trade, which will cause more countries to feel the pain via disrupted supply chains.
Markets in mainland China and Hong Kong fell following the news, as concerns arose that the 90-day truce agreed by Beijing and Washington had been broken with Meng’s detention.
Sue Trinh, head of Asia FX strategy at RBC Capital Markets, said the market had become too positive.