Templeton analysts play down trade war impact

 
Franklin Templeton Investments, one of world’s largest asset management companies, said there was too much fear around the issue of trade. 
“The United States has led the world in trade since World War II and had been setting lower tariffs than other countries.
“Perhaps, it is time to review some of the older trade deals. China was one of the countries that benefited from some very favourable trade deals while it was still an emerging nation, but now it does not need that kind of support anymore. Ultimately, we think trade reform is probably going to be good for China; it should be more stable.
In a co-authored article about global investment outlook, the analysts said they were still optimistic about emerging markets, especially in Asia.
“China continues to de-leverage the shadow banking sector, which we believe has positive long-term implications. We will probably see more of a US and China tit-for-tat trade dispute, as opposed to a full-out trade war. Our baseline is it would probably increase volatility but won’t have a big impact on fundamentals,” they said.
They said that if one were to examine a single factor, trade would be the single most important one in driving global GDP growth. In 2017, emerging markets accounted for 59 per cent of global GDP growth in US dollar real terms with China alone contributing 27 per cent, while the United States accounted for only 16 per cent, said the Templeton analysts. While 2018 may be rather different, given the strengthening of the US dollar, the long-term trend is evident. “We’re not only witnessing a shift in the geographic epicentre of GDP growth to the East, but even within emerging markets there has been a transformation in the drivers of growth.”
For instance, several years ago China overtook the United States and Japan in terms of total patents filed. It was one of the many indicators of the shift towards innovation, technology and more broadly the “new economy” that is taking place, according to Templeton.
The analysts expect a continuation of positive global economic growth led by the United States. “That said, we are monitoring growth momentum as we are seeing more desynchronisation throughout the world at this time. The euro-zone growth slump appears to be moderating, and China’s leading growth indicators have been stable after a very strong first half of the year.
“We see some evidence of weakness throughout other emerging markets, but believe most of the volatility stems from idiosyncratic shocks; we therefore do not foresee a broader emerging-market crisis,” said the Templeton analysts.
In Thailand, many foreign investors are still worried about the trade war and the US rate hike, said Prinn Panitchpakdi, country head at CLSA Securities, adding, “They will return to the Stock Exchange of Thailand when there is a resolution on trade disputes between the US and China.” 
If the US Federal Reserve does not increase its policy rate by a wide margin, it would be positive for Thailand’s stock market, he noted. Currently, there are just a few foreign investors buying Thai shares after the previous sell-offs, he said.
“Moreover, if Prime Minister General Prayut Chan-o-cha lifts the political ban, it would boost the local stock market,” he added.