More Pain Seen In Global Equities On Trade War Jitters

Dubai: Global equities may witness more pain this week as expectations of a trade war continue to grow.

On Friday, Donald Trump outlined fresh tariffs on $50 billion (Dh183.5 billion) of Chinese imports, triggering a warning of counter-measures from China and heightening the threat of a trade war among countries, which could potentially slow growth. The US president has earlier imposed tariffs on steel and aluminium imports to protect local industries.

“This raised the prospect of an all-out trade war between the world’s two largest economies. Investors fear the impact of escalating trade tension on global economic growth and corporate earnings, with cyclical sectors [ie those most exposed to economic swings] leading the sell-off,” Schroders said in a note posted on its website.

The Dow Jones Industrial Average closed 1.77 per cent lower to 23,533.20. The S&P 500 index ended 2.10 per cent weaker to 2,588.26. The MSCI global index shed 1.8 per cent on Friday, bringing the total losses to 3.4 per cent, its worst week since early February.

“Investors thought it was a mere election campaign rethoric of Trump, but they are seeing it in reality now. These protectionist measures can rattle the entire economic and trade environment, and will only add to existing uncertainty, which have an adverse impact on equities,” Nadi Bargouti, head of asset management, Emirates Investment Bank told Gulf News.

According to reports, the cascading losses has wiped off almost $1 trillion from global equity markets since the trade skirmish between the US and China began.

Cautious

Analysts said investors should play in defensive stocks at the same time keeping their portfolio well diversified.

“Investors who made a lot of money last year will start locking in some gains. Investors who came in late will strike a more cautious note. They will go defensive, and play safe and wait for the markets to settle,” Bargouti said.

The Dow has shed nearly 5 per cent so far in the year, after gaining nearly 30 per cent in 2017.

“We have been underweight equities globally. We have no reason to change that view now. We still don’t see the market attractive at current levels. We will continue to cherry pick and find attractive names,” Bargouti said. Emirates Investment Bank has been underweight equities since 12 months, and has resorted to selective investments.

Oil outlook

Rising tensions in the Middle East will continue to support oil prices in the coming days, analysts said as global benchmark Brent rose by more than 2 per cent on Friday as prospect of US re-introducing sanctions against Iran increase due to changes in the US administration.

“Rising tensions in the Middle East will continue to add layers of support for oil prices. Washington’s decision on prospective sanctions for Iran will elicit a response in crude oil prices. We can expect for a geopolitical premium should the Trump administration take harsher measures against Tehran,” Benjamin Lu, commodities analyst from Singapore based Phillip Futures, told Gulf News.

Brent was trading at $70.45 per barrel, up by 2.23 per cent and US crude West Texas Intermediate at $65.88, up by 2.46 per cent when markets closed on Friday.