- Escalating trade tensions between the US and China have global markets on edge.
- Emerging-market investors could reap great returns by differentiating between the trade war’s winners and losers, said Rashmi Gupta of JPMorgan Chase Bank.
- Gupta argues that savvy traders should be able to profit regardless of the trade war’s outcome.
- Brazil, India, and a range of Asian countries are among those highlighted as possible winners.
- Read more on Markets Insider.
Regardless of outcome, the trade war could be an opportunity for investors willing to look towards often-overlooked markets abroad.
That’s according to Rashmi Gupta – a money manager at JPMorgan Chase Bank in New York – who is specifically referring to emerging markets, which have badly lagged their developed-market counterparts for years.
To get an idea how EM will respond to a successful trade-war resolution, look no further than the performance of the MSCI Emerging Markets index on Tuesday. It closed 1.3% higher after President Donald Trump tweeted that he and Chinese President Xi Jinping and will have “extensive” discussions at the upcoming G20 summit.
“If you also look at times when it feels that trade may be resolved or trade issues may be improved you notice how sharply emerging markets rally,” Gupta told Markets Insider in a recent interview. “That’s because the valuations are attractive, the earnings are attractive, and people are looking to allocate.”
But Gupta also thinks parts of EM are poised to perform in the event the trade war rages further. For one, she thinks the group is less exposed than the US should talks go south.
“Emerging markets have priced a lot of fear around trade first, but I think US markets would price a lot more fear if trade doesn’t get resolved,” Gupta said.
She notes that if trade talks deteriorate, China, for example, will import more products from other countries. One winner in this scenario is Brazil, because China would likely import soybeans and meat from the country.
Other Asian countries could also benefit. Thailand, Vietnam and Indonesia could see an uptick if companies shift some of their manufacturing there, Gupta said.
Another winner could be India, which Gupta said is a much more domestic economy that is less driven by global trade than other countries. Investors looking to avoid some of the turmoil around trade could look to countries like India for growth opportunities.
This bifurcated but ultimately bullish view on EM highlights that major geopolitical events can cause dislocations ripe for traders to exploit.
“You have to be careful when you think about things like trade because there are always winners and losers,” she said. “If you can differentiate from them or across them you can earn great returns.”
Aside from trade, Gupta said that there are reasons to invest in EM.
“There are opportunities in emerging markets, and if you only think about the macro theme of trade tension you’ll be missing out on pretty big opportunities,” she said.
For one, the current economic climate looks good for EM. The Fed has taken a more dovish stance as of late, and rate cuts are on the table. If the Fed does lower rates, it’s also likely that the US dollar will lose some of its strength, which would be positive for EM currencies.
Further, EM valuations are looking relatively inexpensive over the next year, a number of countries are positioned for growth, and many are also in the midst of reforms that could be beneficial, said Gupta.
“Russia is up double digits. Brazil is up double digits. And that has nothing to do with trade,” Gupta concluded.
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