Investors should favour US stocks over Chinese onshore equities this year until there is more certainty over the outcome of US-China trade war, according to private bank and asset manager LGT Bank. The US economy is likely to grow by 1.8 per cent this year and keep the Federal Reserve from taking more interest-rate actions, according to Stefan Hofer, the bank’s chief investment strategist. Central banks also are buying assets, essentially a mini quantitative easing, that can provide an insurance against downside risk, he added. Under that scenario, the S&P 500 can deliver “a fairly decent” 10 per cent upside, Hofer forecasts. The gauge rallied 28.9 per cent in 2019, the most since 2013. An index tracking China’s biggest domestic stocks on Shanghai and Shenzhen exchanges surged 36.1 per cent in 2019, after a 25 per cent slump in 2018. China, on the other hand, is in the midst of a structural slowdown driven by an ageing population, the bank said. An expected “phase one” trade deal between the two countries is already priced in, and investors are looking beyond that for the next round of discussions. Citibank, JPMorgan see political risks dominating 2020 market sentiment “We will want to see what is the tone of the [trade] discussion, what are the next steps after that, so we're waiting for catalysts now,” said Hofer, who is keeping a neutral stance in Chinese equities. Future talks are likely to involve more tricky stuff such as intellectual property rights, opening up of sectors for foreign investment and enforcement, he said. The bank is part of the LGT group of Liechtenstein, which had 215 billion Swiss francs (US$221.5 billion) of assets under management on June 30, 2019. The US-China trade war has dominated market sentiment as President Donald Trump placed tariffs on hundreds of billions of dollars of Chinese-made goods to try and force Beijing to change decades of industrial and trade policy. China has responded with its own tariffs on US goods. Hofer said the US presidential election will be the “number one” issue for investors next year. A growing economy may help Trump win re-election, according to LGT Bank’s baseline view. The S&P 500 tends to rally after a close election is fought as risk premium is taken out of the market, he said, going by some historical precedents following presidential contests in 1952, 1960, 1968, 1976, 2004, 2012, he added. China tries to quell doubts over growth figures with new statistics method Crystal Chan, senior investment specialist at Principal Asset Management Company Asia, said it might “not be a good thing” for the US economy and investor sentiment if Democrats are able to regain control of the White House or the Senate later this year. “Left-wing candidates with policies such as raising taxes, restricting stock repurchases or breaking up large technology companies may reverse the upwards trend of US stocks and impact industry profits,” she said. If Trump is re-elected, the fund manager expects him to take measures to grow the economy and inject more positive impact on the investment markets. Beijing to direct household savings into equities funds, fuel hopes for bull run among analysts Nicholas Yeo, head of China equities at Aberdeen Standard Investments, is bullish on domestically focused Chinese firms. They are “better insulated” from a potential deterioration in US-China trade relations, thus A-shares have further room to advance this year, he said. “It was one of the best performing markets in 2019,” Yeo said. The market is not expensive because it is recovering from a very low level after registering one of the worst performances in Asia in 2018, he added. Meanwhile, Gordon Fraser, portfolio manager for global emerging markets equities at BlackRock Inc, said 2020 could be a favourable year for emerging-market stocks, given stabilising global growth and easy liquidity conditions. “Asset allocators are underweight emerging markets,” Fraser said. “Global conditions are favourable, people are under-positioned and flows are starting to come into the asset class.” BlackRock is “marginally underweight” on Chinese equities while looking out for “interesting opportunities” in the nation and adding more money into cyclical plays. LGT Bank is likely to upgrade China’s stocks to overweight from neutral on a constructive outcome of subsequent trade talks between the world’s two largest economies. Hofer said it would be a game-changing shift that outweighs a lot of the structural headwinds in China’s economy.