US equities are better bets than Chinese stocks, pending greater certainty over trade war outcome: LGT Bank
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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.
“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.