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CIO Strategy BulletinArticle11 May 2024

Asked and Answered: Your Questions China, the US Election and Trade Wars, Ukraine, and Whether Investors Should Go Away in May

CIO Strategy Bulletin

The possibility of a renewed “US/China trade war” with retaliation on US companies operating in China is a risk we must account for in our asset allocation.

Key Takeaways

Our clients have many great questions that reflect a wide range of uncertainties that are generally always present. This week, we address questions on investments in China, Europe, US trade policy and elections.

Have Chinese equities bottomed? We believe the answer is “yes”. The bigger question is how long can this rally last? The longevity of the rally would depend on a potential rebound in earnings growth as current valuations remain historically low.

What if the US pursues a trade war with China again? A tit-for-tat trade war could lead to another round of fears over consumer prices in the US. The possibility of a renewed “US/China trade war” with retaliation on US companies operating in China is a risk we must account for in our asset allocation. However, a very large increase in tariff collections in 2018 had remarkably little impact on price measures.

What would a fresh Russian offensive into Ukraine mean for Europe and global markets? European leaders are gearing up for the defense challenge with increased spending to shield “against the winds of political change.” NATO Secretary-General Jens Stoltenberg has proposed a US$100 billion, five-year fund for Ukraine. However, geopolitical shocks and threats to security have generated remarkably few cases of lasting impact on a global scale.

Should I sell in May and go away? The third quarter of the year has the weakest on average historic return for equity markets. Yet selling the S&P 500 in May and buying back in November would have underperformed a “buy and hold” strategy by about 1.4% per annum since 1990.

What can investors do ahead of potential US Election related volatility? With key US bond yields literally 10X higher than 2020 lows, a balanced portfolio of bonds and equites together should see diminished correlation and stronger risk adjusted returns. Beyond this, direct hedging costs remain near all-time lows

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