May 7, 2020

Escalation in US-China tensions is ‘the last thing’ anyone needs: JPMorgan

With the world already reeling from the economic impact of the coronavirus pandemic, a reignition in U.S.-China trade tensions would be the “the last thing” anyone needs, according to JPMorgan Asset Management’s Alexander Treves.

Those comments came on the back of data released Thursday which showed China’s exports besting expectations in April, a statistic Treves told CNBC’s “Street Signs” was “very, very surprising.”

“This means that economies are maybe working better than one might have thought, but the other thing which immediately came to me is I would like to see what the trade surplus number with the U.S. looks like,” Treves, who is managing director and investment specialist of emerging markets and Asia Pacific equities at JPMorgan Asset Management, told CNBC’s “Street Signs” on Thursday.

“If the U.S. administration decides that actually these export numbers show that somehow China’s been benefiting unfairly, compared to expectations from the current situation, then that might lead to a ratcheting up of trade tension,” he said. “Frankly speaking, that’s the last thing that any of us need right now.”

That comes as the rhetoric between Washington and Beijing has been dialed up in recent days, with U.S. Secretary of State Mike Pompeo going as far as to say that there was “a significant amount of evidence” suggesting that the virus emerged from a state laboratory in Wuhan, China where cases were first reported.

For its part, China has vehemently rejected claims that the virus escaped from the Wuhan Institute of Virology and has even accused the U.S. of being the origin of the virus. Most experts believe that the virus likely originated in a wet market in Wuhan and was transmitted to humans via bats, or pangolins.

Market implications

The recent rekindling of tensions between the two economic powerhouses is a variable that presents “renewed risk” for markets, Goldman Sachs’ Timothy Moe told CNBC’s “Squawk Box Asia” on Thursday.

Moe, who is co-head of Asia macro research and chief Asia Pacific equity strategist, said an indicator measuring the market’s pricing of U.S.-China specific trade risk has “slipped a bit” in the past week or so. This shows that the market, underneath the surface, is “beginning to price in some concerns about U.S.-China friction” over issues such as trade or potential retaliatory efforts over the coronavirus, he said.

“We do think this is a factor that’s becoming a greater issue for markets and will likely feature more prominently in market pricing … in the near term,” Moe said.

Just months ago, Beijing and Washington inked a partial trade deal that brought some clarity for investors following months of uncertainty. That January deal, however, swiftly fell out of focus as the rapid spread of Covid-19 left economies around the world virtually frozen as a result of social distancing measures implemented by authorities.

“It would be probably a mistake, a policy mistake, to do anything that’s really substantial in economic terms,” said Ray Farris, chief investment officer of South Asia at Credit Suisse. “Equity markets wouldn’t like it.”

“My bias is to think that given the situation in the U.S., the need for an economic recovery, the need to try to support continued equity market strength, that this will be mainly rhetorical and that measures taken will be really quite measured,” Farris said.

⁠— CNBC’s Holly Ellyatt contribute to this report.

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