A resolution of the US-China trade war that has raged for the past year could fuel a shift in investment to Asia and other international markets, as investors globally reduce their positions in United States equities, which have outperformed other markets in recent years, according to Sean Taylor, the Asia-Pacific chief investment officer at asset manager DWS. Any agreement between the world’s two largest economies, however, is likely to not happen before the first or second quarter of 2020, Taylor said. “The big phenomenon in markets over the past nine years or so, which I’ve probably been talking about every time we have a press conference, is the outperformance of the US versus international,” Taylor said. “At some stage, that’s got to change and we think next year will be a very, very good opportunity for that. It won’t happen while we have uncertainty over trade. It won’t happen while we have a slightly strong dollar, so we are keeping overweight in the US, but are looking to be adding into these other areas.” US President Donald Trump has placed tariffs on about US$380 billion of goods imported from China as he tries to force Beijing to change years of industrial and trade policy. China has responded with its own tariffs and other actions in a trade stand-off that has raged since last year. The two sides are expected to meet again in two weeks as US and Chinese officials try to craft an agreement. Tensions have eased somewhat in recent weeks, with Trump delaying a tariff increase that was set to go into effect on National Day in China for two weeks. Beijing responded that it would exempt some US agricultural products, including soybeans, from further tariffs. ....on October 1st, we have agreed, as a gesture of good will, to move the increased Tariffs on 250 Billion Dollars worth of goods (25% to 30%), from October 1st to October 15th. — Donald J. Trump (@realDonaldTrump) September 11, 2019 The tensions have weighed on business sentiment and global trade against the backdrop of a slowdown in economies around the world. Taylor said he did not anticipate a global recession next year – a growing fear among investors and some economists as the trade war has raged. “Why we’re not expecting a recession is because we think the consumer is still resilient and holding up,” Taylor said. “Also, we’re expecting more stimulus from central banks and more fiscal policy [actions].” DWS expects China’s economy to grow at 6.2 per cent this year and 6 per cent in 2020, while the asset manager sees gross domestic product growing in the US at 2.3 per cent in 2019 and 2 per cent next year. Taylor said DWS was anticipating the US Federal Reserve will cut interest rates one more time in the next year, while Fed fund futures are anticipating as many as three in the same period. He also expected more stimulus by China. “There is an increasing worry in the market that we need to do things to get structural growth back and rates are not going to help,” Taylor said. He said there was a “disconnect” between the consumer – and their willingness to spend – and what was happening in terms of manufacturing and business sentiment in the wider economy. DWS is underweight on equities because of corporate earnings, with the earnings picture “not looking that good, and a lot of it is coming out of trade”. “Chinese earnings are down, but they’re more resilient [than other markets in Asia],” he said. “Profit has been falling less [than top-line growth]. For the first time in five or six years, in Chinese companies, we’ve actually seen them say maybe the environment is going to be tough, maybe there won’t be a trade deal. Let’s start taking some measures to protect our profits. They’ve been cutting costs.” Taylor said earnings in Asia have been hurt by currency moves and lack of confidence because of the trade situation. Credit Suisse shifts to equities amid hopes of trade war easing Resolving the trade issue “could be a tremendous boost”, he said. In Asia, DWS is overweight in India and Thailand and neutral on China and Indonesia. It is underweight in Taiwan, South Korea and other parts of Southeast Asia as well. Taylor also said DWS preferred A shares in China over Hong Kong-listed stocks, but did not see Hong Kong’s position as an international finance centre changing despite anti-government protests that have disrupted the city for 16 weekends this summer. ‘Embrace the inner contrarian and buy’, emerging markets asset manager says “We don’t see that changing. We’re monitoring the situation,” Taylor said. “We think it is business as usual … It is one of questions I’m getting globally and people are asking me what is it like there, so it’s important. We hope for it economically that this year we’ll have a resolution.”