Protectionism Is A Losing Game -May 20, 2019

Protectionism Is A Losing Game

We recommend protecting profits in equities by lowering our weight to neutral within a multi-asset portfolio (and we lowered our EM weight to neutral within a global equity portfolio). We are still directionally positive on economic prospects, and have an upgrade bias in equities.

Our focus has been on the impact of escalating tariffs on China, and conclude that the next round of proposed increases would be both much more noticeable to U.S. consumers than previous tariffs, and would tilt the U.S. economy towards stagflation. The risk of unnerving the financial markets and undermining still-buoyant business sentiment would increase markedly if a truce does not occur in the coming months.

It is premature to turn bearish, as there is still time to avoid a protectionist spiral, but the current path is worrisome – stay tuned.

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