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A $1 trillion manager sees EM rebound on trade truce next year

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Developing-nation assets will likely outperform in the year ahead as geopolitical risks in Europe from Brexit to Italy weigh on the developed world.

Thursday 22, November 2018

(Bloomberg)--The toll of declining business confidence will eventually make President Donald Trump cut a trade deal with China—helping revive emerging markets in 2019, according to one of the world’s largest money managers.

While it’s unlikely that Trump and his counterpart Xi Jinping reach a truce at the Group-of-20 summit in Argentina next week, their meeting will probably be the first step toward an agreement in 2019, said Chris Gaffney, president of world markets at TIAA Bank in St. Louis. He said developing-nation assets will benefit from easing trade tensions plus a potential midyear pause by the Federal Reserve and a softer dollar. The $1 trillion investment firm manages pension accounts for higher education institutions in the US

"The bleeding for emerging markets stops in 2019," Gaffney said in an interview. "Still, we don’t expect returns to continue as we’ve seen before. We think it’s lower and slower."

Developing-nation assets will likely outperform in the year ahead as geopolitical risks in Europe from Brexit to Italy weigh on the developed world, according to TIAA. Gaffney said he sees value in China’s beaten-down A-Shares market, which have fallen into bear market territory. He’s also optimistic about the yuan as well as currencies from Argentina to Brazil and India after their big selloffs this year.

Despite his optimism on China, Gaffney said a slowdown there poses the biggest risk to emerging markets. His base case is a soft landing given the amount of control in the hands of authorities in Beijing.

"China has the advantage of really controlling their economy much more directly than the US or EU can," he said. "They can make it happen. They own most of the economy, so they can just adjust it. That’s not always a good thing, but in trying to manage out of situations like this, it can be a positive."

TAGS : trade war, Xi Jinping, Donald Trump

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