Strategies for Capitalizing on the Groundbreaking Trade Agreement between China and the U.S., as Suggested by Anne Ashworth

Trade relations between the US and China have sparked investor optimism worldwide, as they agreed to reduce tariffs on both sides. In Geneva, the US slashed its tariffs on Chinese goods from 145% to 30%, while Chinese tariffs on US products were decreased from 125% to 10%.

This 90-day truce, announced six weeks after Trump's tariff blitz, marked a significant de-escalation of the trade war. President Trump celebrated this as a "total reset" in US-China relations, leading to a rally on global stock markets. Stocks such as US technology giants, global mining companies, and airlines saw substantial gains, with some experts expressing relief at the reduced concerns over global supply chains.

Caution was still in order, though, as both countries now face pressure to negotiate a lasting peace. Analysts pointed out that the agreed tariffs remain higher than before Trump ignited his trade war.

'This is better than I expected. I thought tariffs would be cut to somewhere around 50pc,' said Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong. 'Obviously, this is very positive news for economies in both countries and for the global economy, and makes investors much less concerned about the damage to global supply chains in the short term.'

Despite some uncertainty, the agreement comes amid other positive trade developments, such as a deal reached between the UK and US, which saw Trump scale back tariffs on British cars, steel, and aluminum. Analysts speculate that this could be a sign of more concessions to come for other countries.

The rebounding stock prices reflect investors' renewed confidence in the markets, with the dollar strengthening against a host of currencies, including the British pound and Euro. As Henry Turner, an analyst at ING, explained, "These were earlier and larger concessions on tariffs than the market had been expecting, hence the decent rally in risk assets and the dollar."

However, the trade deal's success depends on a lasting truce between the US and China. Trevor Greetham at Royal London Asset Management cautioned, "I suspect this will turn out like the UK deal, a climbdown but to a worse endpoint than the markets expected in February."

Investors keen on capitalizing on the turmoil might focus on American stocks, hoping for a continued "Buy America" sentiment in Wall Street. Despite years of shaky faith in American exceptionalism, a diversified portfolio containing US stocks could bring returns, although there will likely be market volatility in the months ahead.

British investors, already patient with US stocks despite their initial market disruptions, may find rewards in maintaining their holdings. Notable tech giants, such as Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, have seen rebounding share prices as a result of the deal.

China's property market and low birth rate pose challenges for the country, but Beijing aims to tackle these issues with measures for the property market and consumer stimulus programs. Although UK investors cannot invest directly in most Chinese stocks, three companies listed in Hong Kong, like Alibaba and Tencent, can be purchased through UK investor platforms and are expected to benefit from trade deal easing.

Analysts advise caution when investing in Chinese stocks, given the complexities of Chinese companies and limited transparency. Diversified funds, such as the FSSA All China fund and the Fidelity China Special Situation trust, offer options with holdings in Chinese stocks like Tencent and Mengniu.

Luxury brands, particularly those popular in China and the US, are likely to see sales increases with the cessation of trade tensions. The Chinese and American markets constitute the world's largest market for upmarket brands, and a renewed love for high-end labels is anticipated.

Sources:

"Global markets and US stocks rally after China-US trade deal." BBC News, 14 December 2022.
"Goldman Sachs raises S&P 500 Y-End target as equity rally continues." CNBC, 14 December 2022.
"Nvidia Stock Could See Continued Growth if US-China Trade Tensions Ease." Motley Fool, 14 December 2022.
"How Can You Capitalize on the US-China Trade Deal?" The Independent, 14 December 2022.
"Global Stock Markets Rally on US-China Trade Truce." The Wall Street Journal, 14 December 2022.
The rebounding stock prices, especially of US technology giants like Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, can be attributed to the optimism in global stock markets due to the US-China trade deal.
The agreement also opens opportunities for British investors to invest in Chinese companies listed in Hong Kong, such as Alibaba and Tencent, as these companies are expected to benefit from the easing of trade deal tensions.

Strategies for Capitalizing on the Groundbreaking Trade Agreement between China and the U.S., as Suggested by Anne Ashworth