Signs of a de-escalation in the ongoing trade dust-up from a meeting between Presidents Donald Trump and Xi Jinping this weekend will bring relief to emerging markets, among the hardest-hit assets this year, according to UBS Asset Management.
The U.S. and China agreeing to "a framework for negotiations, and perhaps an agreement to suspend additional tariffs" at the G-20 gathering in Buenos Aires may spark a relief rally, said Evan Brown, head of macro asset-allocation strategy at the money manager. "Markets will take that quite well."
After a strong start to the year, emerging stocks, bonds and currencies tumbled on a cocktail of concerns from the trade spat to the impact of rising oil prices and the Federal Reserve's tightening on global growth. The MSCI Emerging Markets index is down 14% year-to-date despite this month's rebound, and the Bloomberg JPMorgan Asia Dollar index has slid about 5%.
UBS Asset has been increasing exposure to emerging markets over the past few months, Mr. Brown said, lured by cheap valuations.
"There are plenty near-term headwinds and that's why you don't want to jump all in to emerging markets today," he said. "But given the valuations, it makes sense to start adding."
The Swiss bank's asset management arm is also recommending clients load up on Chinese and Asian junk bonds. The reason: a "huge" valuation gap has opened up relative to the U.S. and European counterparts, said Hayden Briscoe, head of fixed income for Asia Pacific.