hongkongen
Fears of Trump's impact on China overstated

Fears of Trump's impact on China overstated

22-06-2017 | Emerging markets alert

Will the competing agendas of Xi and Trump cause turmoil in emerging markets? To find the answer to this question, Victoria Mio, CIO China, and Fabiana Fedeli, Head Fundamental Equities and Portfolio Manager Emerging Equities, had meetings with financial leaders, government officials, and think-tank analysts from the United States and China.

  • Victoria  Mio
    Victoria
    Mio
    CIO China, co-Head Asia Pacific Equities, Fund Manager Robeco Chinese Equities
  • Fabiana Fedeli
    Fabiana
    Fedeli
    Head of Global Fundamental Equities, Portfolio Manager Emerging Markets

Speed read

  • The protectionist tone of the Trump administration has softened
  • A US-China trade war seems to have been averted at this point
  • Trump is likely to look for ‘easier victims’

Following our meetings, we believe that fears of a negative impact from the policies of the Trump administration on China – and, as a result, on emerging markets - have overstated the actual risk. The risk of a trade war between the US and China has significantly subsided following the Trump-Xi meetings in April, which have opened a path for constructive negotiations.

Political transitions: uncertainty in the US vs continuity in China

Sentiment towards both the US and China has substantially changed over the last year. Concerns have increased toward the US, due to the uncertainty about the Trump administration’s future policies. As for China, sentiment has improved from the overwhelmingly pessimistic tones of a year ago. In the meetings, the consensus was that macro fundamentals had improved, although the problems surrounding financial leverage remain unresolved.

Data seems to support this view. The Li Ke Qiang index, which reflects the margin impact of the recent Chinese government stimulus, has been indicating a recovery. Consumption continues to grow quickly. China’s imports jumped 20.3% year-on-year and exports surged 16% in March, the highest in more than two years, but slowed slightly in April. In addition, tighter capital controls, interest rate hikes by the People’s Bank of China plus better than expected economic fundamentals have supported the currency.

In addition, both US and Chinese authorities have significant doubts about the Trump administration's ability to push through tax cuts, higher fiscal spending and looser regulations, which are three key promises of the President’s campaign. The two main reasons for this are the severe level of understaffing of the administration, as many positions are still vacant, and the significant pushback that some of the policy proposals are facing within the US. On the other hand, China’s President Xi’s power appears strong. This will allow him to renew his efforts on reforms, particularly in tackling the high rise of debt in the country.

Globalization and trade war: ‘America First’ in the US vs Belt and Road Initiative in China

China continues to portray itself as a supporter of globalization, and Chinese officials put strong emphasis on the Belt and Road Initiative and the Asia Infrastructure Investment Bank. Both initiatives are a result of China’s current foreign policy aim to increase China’s influence on international affairs.

The Belt and Road Initiative covers 69 nations and initiatives in the areas of trade and finance, infrastructure construction, and policy coordination. In order to fund the B&R initiative, China has set up two funding vehicles: the Silk Road Fund and the Asia Infrastructure Investment Bank (AIIB). While the US has not joined the AIIB, the Trump administration sent high level officials to attend the Belt & Road Forum in May, highlighting the more positive climate between the two nations.

Meanwhile China and the US have announced a 100-day action plan, which covers the exchange of goods and services between the two countries and sets a direction for comprehensive trade negotiations. This has significantly diminished the probability of a trade war.

Both sides would have much to lose from a trade war. The US is China’s largest export market, as exports to the US reached USD 410.8 billion, 18% of total Chinese exports, or 3.7% of China’s GDP, in 2015. The impact of a China-US trade war would likely be a demand shock for China. On the other hand, as China is the dominant supplier of many labor-intensive products, a trade war with China would represent a supply shock for the US, and could bring inflationary pressure to the US economy.

Also, China is the US’ fastest growing export market and large American corporates have much to lose if access to that market is made more difficult. In 2016, China’s total retail sales reached CNY 33.2 trillion, the equivalent of USD 5,000.9 billion, broadly comparable to the USD 5,504.1 billion figure in the US. China is expected to become the world’s largest importer in the next one or two years. This provides China with huge bargaining power on the global trade front.

The improved Sino-US relationship could have less desirable consequences for other US trading partners. First, at least in the short term, China could divert some of its imports to the US from other countries, in order to show goodwill in shrinking the bilateral current account deficit. This is likely, for example, for soft commodities such as soybean and grains, and therefore there could be a negative impact on other countries and companies exporting soft commodities to China, such as Brazil, followed to a lower extent by Argentina, the EU, Australia, Malaysia, Indonesia and India.

Second, in order to show that he keeps his campaign promises, Trump might have to look for ‘easier victims’ of his protectionist campaign promises rather than China. This could imply that NAFTA and hence Mexico remain a target as well as non-trade related policies such as the Paris climate accord.

Important information

The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.

Subjects related to this article are:

Disclaimers

1. General
Please read this information carefully.

This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

2. Important risk disclosures
Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:

  • Some Funds are subject to investment, market, equities, liquidity, counterparty, securities lending and foreign currency risk and risk associated with investments in small and/or mid-capped companies.
  • Some Funds are subject to the risks of investing in emerging markets which include political, economic, legal, regulatory, market, settlement, execution, counterparty and currency risks.
  • Some Funds may invest in China A shares directly through the Qualified Foreign Institutional Investor (“QFII”) scheme and / or RMB Qualified Foreign Institutional Investor (“RQFII”) scheme and / or Stock Connect programmes which may entail additional clearing and settlement, regulatory, operational, counterparty and liquidity risk.
  • For distributing share classes, some Funds may pay out dividend distributions out of capital. Where distributions are paid out of capital, this amounts to a return or withdrawal of part of your original investment or capital gains attributable to that and may result in an immediate decrease in the net asset value of shares.
  • Some Funds’ investments maybe concentrated in one region / one country / one sector / around one theme and therefore the value of the Fund may be more volatile and may be subject to concentration risk.
  • The risk exists that the quantitative techniques used by some Funds may not work and the Funds’ value may be adversely affected.
  • In addition to investment, market, liquidity, counterparty, securities lending, (reverse) repurchase agreements and foreign currency risk, some Funds are subject to risk associated with fixed income investments like credit risk, interest rate risk, convertible bonds risk, ABS risk and the risk of investments in non-investment grade or unrated securities and the risk of investments made in non-investment grade sovereign securities.
  • Some Funds can use derivatives extensively. Robeco Global Consumer Trends Equities can use derivatives for hedging and efficient portfolio management. Derivatives exposure may involve higher counterparty, liquidity and valuation risks. In adverse situations, the Funds may suffer significant losses (even a total loss of the Funds’ assets) from its derivative usage.
  • Robeco European High Yield Bonds is subject to Eurozone risk.
  • Investors may suffer substantial losses of their investments in the Funds. Investor should not invest in the Funds solely based on the information provided in this document and should read the offering documents (including potential risks involved) for details.

3. Local legal and sales restrictions
The Website is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of the Website is prohibited. Persons in respect of whom such prohibitions apply or persons other than those specified above must not access this Website. Persons accessing the Website need to be aware that they are responsible themselves for the compliance with all local rules and regulations. By accessing this Website and any of its pages, you acknowledge your agreement with understanding of the following terms of use and legal information. If you do not agree to the terms and conditions below, do not access this Website or any pages thereof.

The information contained in the Website is being provided for information purposes.

Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.

4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.

5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.

6. Third party websites
Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage.

7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.

8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.

9. Privacy
Robeco guarantees that the data of persons accessing the Website will be treated confidentially in accordance with prevailing data protection regulations. Such data will not be made available to third parties without the approval of the persons accessing the Website, unless Robeco is legally obliged to do so. Please find more details in our Privacy and Cookie Policy.

10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong. 

Please click “I agree” button if you have read and understood this page and agree to the Disclaimers above and the collection and use of your personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy and Cookie Policy, including for the purpose of direct marketing of Robeco products or services. Otherwise, please click “I Disagree” to leave the website.

I Disagree