November 6, 2019 / 7:48 AM / 14 days ago

Trade war reprieve, China consumer to boost equities in 2020: Value Partners

HONG KONG (Reuters) - Global equities are set to rebound next year as worries about trade spats, corporate earnings, and sluggish global growth begin to get priced in, said King Au, president of Hong Kong-listed asset manager Value Partners Group Ltd (0806.HK).

FILE PHOTO: A 100 yuan banknote (R) is placed next to a $100 banknote in this picture illustration taken in Beijing November 7, 2010. REUTERS/Petar Kujundzic

The U.S.-China trade war has pressured economies and spooked stock markets in 2019, sending investors to the safety of gold and government bonds. But riskier assets may come back into favor as the two sides draw closer to a deal, he said.

“Next year, we believe equities will make a comeback,” Au said at the Reuters 2020 Investment Outlook Summit in Hong Kong. “We are so positive on equities, because we see that a lot of the earnings revisions have bottomed out or are bottoming out.”

He said U.S. Treasuries could become the “worst trade” in 2020 if investors realize the world’s largest economy was not really heading for a hard landing and the trade tensions start to gradually dissipate.

Hopes of a trade deal between the United States and China sent the three main U.S. indexes to record highs early this week.

Negotiators are working to finalize a text of a “phase one” pact for U.S. President Donald Trump and Chinese President Xi Jinping to sign this month to ease the nearly 16-month trade war that has dented the global economy.

Au said his asset management firm was betting on a sustained rally in Chinese stocks, despite growth in the world’s second-largest economy slowing to a near 30-year low in the third quarter this year.

“We believe the momentum will continue mainly because it’s not just driven by liquidity, it’s really driven by structural reforms going on in China, moving from a supply chain economy to a more demand-driven economy,” he said.

So far this year, the Shanghai SE 50 index .SSE50, which tracks the 50 most representative heavyweights on the Shanghai Stock Exchange, is up 20%, while the blue-chip CSI300 index .CSI300 has risen 33%.

Au said his fund, which manages about $15 billion in assets, favored the high-yielding bonds issued by Chinese property companies. In stock markets, it likes the technology, healthcare and education sectors.

“Over the years, consumption as a percentage of GDP has been rising very quickly, and because of the trade tensions the focus now is more on generating domestic consumption,” he said, referring to the Chinese economy.

Even as Au is “cautiously optimistic” about the global economy, he is not taking his eyes off political risks.

“Obviously, geopolitics (tensions) are here to stay. We don’t believe that the trade war will just simply disappear overnight. We are getting used to these kinds of headwinds, and companies are restructuring themselves to cope with this new reality,” he said.

“As long as it doesn’t deteriorate any further, people will learn and adapt.”

Reporting by Noah Sin and Sumeet Chatterjee; Editing by Subhranshu Sahu

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