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BlackRock, UBS go risk-on with trade angst evaporating in stocks

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Count BlackRock and UBS among those turning more bullish after the U.S. and China agreed on a phase-one trade deal.

BlackRock Investment Institute’s strategists led by Mike Pyle just reversed a cautious stance that had been in place since the middle of this year, urging clients to raise holdings in assets poised to benefit from a pickup in growth, such as emerging markets and Japanese stocks. Meanwhile, Mark Haefele, global chief investment officer at UBS’s wealth management unit, and his team are adding to equities after the trade pact.

Optimism is building that the global economy will snap out of its trade-fomented slowdown. In the U.S. equity market, so much faith has been placed on the partial trade deal that a Morgan Stanley basket of China-exposed stocks has recovered almost all its underperformance since President Trump slapped the first round of tariffs on imports in January 2018.

“We may have reached the point of ‘peak tariffs’ and this deal could be the start of a series of phased roll-backs,” Haefele wrote in a note clients Monday. “This could unlock further upside for equity markets, driven by an improvement in business confidence and a recovery in investment.”

Global stocks last week advanced to a record for the first time since January 2018 after traders took the tariff development in stride. The MSCI All-Country World Index rose for a fourth day Monday, climbing 0.8%. Up 23% in 2019, the benchmark gauge is poised for the best annual gain since 2009.

In the U.S., China-exposed companies are catching up with the record-setting rally. Since their relative performance bottomed in August, the group has beaten the market by more than 2 percentage points.

Not that the trade dispute has been solved. President Trump said Friday that negotiations for the next phase would start immediately, though his trade chief said no date for future talks had been set. The first phase leaves contentious issues unresolved, including U.S. demands that China curb subsidies to state-owned firms. But for now, investors are willing to live with the uncertainty.

Nearly all posted losses over the last year.
May 15

“This is more of a trade truce than a deal, but I think this is a step in the right direction,” Jim Caron, a portfolio manager at Morgan Stanley Investment Management, said in a Bloomberg Television interview with Jonathan Ferro. “The most important thing that I’m getting out of this is that the U.S. an China are going to stop throwing rocks at each other for a while.”

Pyle at BlackRock shared that optimism.

“A firming in global trade and capex should pave the way for stronger performance of cyclical assets” over next six to 12 months, wrote Pyle, global chief investment strategist at BlackRock Investment Institute. “Our base case is for a mild growth pickup as easier financial conditions start filtering through and sideways protectionist pressures give global trade activity some breathing room.”

Bloomberg News