- Escalating political and trade tensions provided a volatile backdrop to Q2.
- While we are entering a lower growth world, we anticipate that things are going to stop getting worse.
- The U.S. – China trade dispute has made the latter more cognisant of the need to develop its own ecosystem.
Shift in Growth and Inflation Expectations
Uncertainty and volatility re-entered equity markets last quarter, as the political cycle in the U.S. started to engage and trade tensions escalated. We have long been of the view that we are heading back to a low-growth world, and that is now readily apparent as global fiscal stimulus continues to fade. We have had a clear shift in growth and inflation expectations this year, leading to an adjustment in monetary policy expectations with global central bank policies pivoting to a more dovish stance.
Things should Stop Getting Worse
We do not believe this is presaging a recession—we view it as just going from juiced growth to lower growth—and many of the secular trends, such as the shift to the cloud, the need for data centres, and the adoption of electric vehicles, should continue. We do not foresee a big cyclical economic acceleration, but think things are going to stop getting worse and that the trade rhetoric should continue to reflect progress on the path to a resolution.
Beneficiaries of Chinese Government’s Ongoing Stimulus Efforts
The rising trade tensions have served as a headwind for export-driven countries in the emerging world, and we remain carefully contrarian around our emerging markets exposure. Chinese equities are feeling the negative effects from the ongoing trade dispute to a larger degree than their U.S. counterparts, and the dispute has made China more cognisant of its need to develop its own ecosystem. We have used periods of weakness to add to our positions in several of the country’s leading technology platform companies and have also found several more idiosyncratic ideas in the region as well that should benefit from the Chinese government’s ongoing stimulus efforts.