The trade deal between the US and China has sparked a wave of optimism on stock markets around the world – leaving many savers and investors wondering if they can cash in.
In an agreement hammered out in Geneva, the US will cut the extra tariffs imposed on Chinese goods from 145pc to 30pc while the levy on those going the other way will fall from 125pc to 10pc.
The 90-day reprieve – announced almost six weeks after Donald Trump unleashed a tsunami of tariffs on the world on what he described as ‘Liberation Day’ – marked a major de-escalation of a trade war that has threatened to plunge the world into recession.
The US president hailed ‘a total reset’ in US-China relations.
Stock markets rallied as investors breathed a sigh of relief – with experts noting sharp rises among the Magnificent Seven US technology giants, global mining stocks and airlines.
‘This is better than I expected. I thought tariffs would be cut to somewhere around 50pc,’ said Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong.
‘Obviously, this is very positive news for economies in both countries and for the global economy, and makes investors much less concerned about the damage to global supply chains in the short term.’
There was some caution, too, however, with Beijing and Washington now under pressure to negotiate a lasting peace.
Stock markets rallied as investors breathed a sigh of relief as the US and China reached an agreement on lowering tariffs in both directions
Trump announced global tariffs on April 2, calling it America’s ‘liberation day’
Analysts also pointed out tariffs remain higher than they were before Trump launched his trade war last month.
‘This is a substantial de-escalation,’ said Mark Williams, chief Asia economist at Capital Economics. ‘However, the US still has much higher tariffs on China. There is no guarantee that the 90-day truce will give way to a lasting ceasefire.’
The US-China deal came just days after an agreement between the UK and US saw Trump slash tariffs on British cars, steel and aluminium – fuelling hopes other countries will also win concessions.
Dan Coatsworth, investment analyst at AJ Bell, said: ‘The Trump administration seems willing to do deals and scale back tariffs if there is something in it for the US. Last week’s trade deal between the UK and US, and now a tentative agreement between China and US, could be signs of things to come. Investors have taken these developments to be positive, and the rebound in share prices is the market’s way of saying too much bad news was priced into company valuations.’
Having retreated sharply in recent weeks on fears of US recession, the dollar clawed back losses against a host of currencies including the pound and euro.
Chris Turner, an analyst at ING, said: ‘These were earlier and larger concessions on tariffs than the market had been expecting, hence the decent rally in risk assets and the dollar.
‘Certainly, it’s an important step in terms of de-escalation, but it’s too early to say the trade war is ending.’
Investors are now pinning their hopes on the US striking a last deal with China – though analysts pointed out that tariffs remain higher than they were.
Elon Musk has seen shares in his electric car company Tesla drop rapidly due to his involvement in the White House, but share prices have increased 15pc over the last week
The trade deal between the US and China has sparked a wave of optimism on stock markets around the world
Trevor Greetham at Royal London Asset Management said this could be ‘another trade deal that worsens trade’, adding: ‘I suspect this will turn out like the UK deal, a climbdown but to a worse endpoint than the markets expected in February.’
Susannah Streeter, head of money and markets for Hargreaves Lansdown, said: ‘Hopes are high for significant deal between the US and China after fruitful weekend negotiations.
‘There’s optimism around that the spat between the world’s two largest economies won’t inflict as much damage globally as had been feared.’
Here our investment guru ANNE ASHWORTH looks at how YOU can cash in from the turmoil.
AMERICA
With the world’s two largest economies kissing and making up – for the time being at least – the cry ‘Buy America’ echoed round Wall Street once again.
British investors who decided to retain their US stocks despite the turbulence provoked by Liberation Day when the tariffs were unveiled will now be feeling vindicated.
Continuing to remain faithful to these stocks, as part of a diversified portfolio, could bring rewards, but there will be volatility in the months ahead. Faith in American exceptionalism has been shaken and has not yet been entirely restored.
The share prices of the tech names that make up the ‘Magnificent Seven’ – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla have rebounded. Tesla shares may still be 17pc lower than at the start of the year, thanks to decline in sales triggered by Musk’s political role, but they have recovered by 15pc over the past week.
The share prices of the tech names that make up the ‘Magnificent Seven’ – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – have rebounded
Sparking these increases were the words of the most influential tech analyst Dan Ives of brokers Wedbush. Ives views the current deal as a ‘dream scenario’. He also believes that the US and China are ‘clearly just the start of broader and more comprehensive negotiations’.
This suggests that it is worth continuing to hold the global funds, such as the F&C trust, whose portfolios are largely made up of US tech stocks, reflecting their dominance of global stock market indices.
FundCalibre’s US best buy funds include Axa Framlington US Growth which owns some Magnificent Seven names plus Eli Lilley, the pharmaceutical group. The Allianz Technology trust has stakes in Amazon, Meta, Nvidia and Palantir, the data analytics group. This secretive group is making the most of the global uplift in defence spending. Its boss Alex Karp runs the company on the principle that ‘you scare the c**p out of your adversaries’.
If you would prefer a fund that is more Middle America than Silicon Valley, Interactive Investor’s recommendation for the adventurous is Artemis Smaller Companies. If you are making a first foray into the US, the SPDR S&P 500 ETF (exchange traded fund) tracks this key US stock market index.
CHINA
Tariffs are not the only issue currently confronting China. The property market is in crisis, resulting in a reluctance to spend among its 1.4 billion citizens. The low birth rate is another problem for this nation: by 2030, it is forecast that there will be more pets in China than toddlers.
But Beijing is trying to address the crisis, by measures to tackle the property market and through a consumer stimulus programme that will create jobs and make childcare easier. Also there will be an expansion of the consumer goods trade-in programme, where households receive a subsidy for trading in household goods and second-hand cars for new replacements.
UK investors cannot put money directly into most Chinese stocks. But three of the largest companies which could be boosted by the easing of the trade war are listed in Hong Kong, and so can be bought through UK investor platforms.
Shares in Alibaba, the technology company, rose by 6pc on the tariff tidings, presumably on hopes of the boost to its vast e-commerce platform.
Also moving upward were shares in Tencent, the owner of the We Chat app, the Chinese equivalent of WhatsApp. Known as Weixin in China, the app has 1.34 billion users. The company is also big in video games, having developed League of Legends.
There was also a bounce in the shares of Meituan, the food delivery business – which serves 60 million orders a day. Investors should be more cautious about this company, however, as it is engaged in a vicious battle for market shares with rival JD.com.
Doing your homework on Chinese companies is tricky which means that the easiest route can be a fund, such as the FSSA All China fund which has holdings in Tencent and the dairy business Mengniu.
The Fidelity China Special Situation trust backs such businesses as Tencent and PDD, owner of the fashion name Temu. It also has a stake in ByteDance, which is better known as the TikTok company. ByteDance is not quoted on any stock exchange.
Ben Yearsley of Fairview Consulting says that the more domestic-bias of this trust gives you exposure to the rewards that could flow from the consumer stimulus initiative – which is beginning to bear fruit. The more buoyant mood following the trade agreement should make consumer feel more confident.
Yearsley also cites the Matthew China Discovery fund which concentrates on smaller Chinese companies, but has some US holdings as well.
Scottish Mortgage, the controversial FTSE 100 tech trust, is a US-China fusion. This is a high risk option for those who like a bargain, since the trust’s share price is at a 11.5pc discount to the net value of its assets. These include stakes in American companies such as SpaceX, Elon Musk’s rocket company, Netflix and Nvidia, the semiconductor titan, but also in the Chinese businesses – ByteDance, Meituan and PDD.
LUXURY
Analysts believe luxury brands such as Louis Vuitton will see sales increase, particularly in China where the luxury clothing market has its biggest demand
Shares in the iconic British fashion house Burberry soared on the US-China trade deal. Also moving upwards were the shares of LVMH, the largest name in luxury, and of Kering which owns Gucci.
There are high hopes that the Chinese and the Americans will now begin to splash out again on upmarket brands following a torrid period of depressed sales. Analysts think that investors should stay put and await the upturn.
China is the world’s number one market for the upmarket brands of UK and Europe, but, recently, their lust for luxury has waned. It is felt that the optimism created by the cessation, for the moment at least, of the trade war will reignite their love of expensive labels.
The affluent classes of America are also an increasingly important clientele for the players in luxury goods industry, but the imposition of tariffs threatened to dampen the enthusiasm for fashion, handbags, jewellery and watches.
Burberry shares have fallen by 30pc over the past three months, but analysts rate them a ‘hold’ sensing that the recovery of this great British business can now resume.
LVMH, whose empire encompasses such brands Dior, Tag-Heuer and Tiffany, is down by 23pc over the same period. However, only one of the 33 analysts that follow the stock rate it a ‘sell’; the rest take the view that it is worth holding, given the improvement in the outlook.
Kering has also taken a tumble. Its shares have dropped by 30pc. But, again, a majority of analysts think the shares worth holding, since affluent shoppers may now be set to fall in love all over again with the brands of this house, like Bottega Veneta and Alexander McQueen, whose designs are worn by the Princess of Wales.
MINING
Mining stocks fell sharply at the start of April as Trump announced his sweeping tariffs.
It was feared an all-out trade war between the US and China would batter the global economy – hitting demand for raw materials such as copper and iron ore.
But with signs the trade war is fading, London-listed mining stocks have a spring in their step once again, with the three biggest – Rio Tinto, Glencore and Anglo American – all making healthy gains.
Russ Mould, investment director at AJ Bell, says ‘mining should benefit if global trade isn’t damaged by Trump’s policies as much as previously feared’.
Of the 22 analysts that follow Rio Tinto, 15 say the shares are a ‘buy’ with four of them saying they are a ‘strong buy’. Six say hold on if you already have the stock while just one analyst says ‘sell’.
Analysts are also bullish about Glencore, with five saying the stock is a ‘strong buy’ while another ten rate it a ‘buy’. Two say ‘hold’ and, like Rio, one says ‘sell’.
There is perhaps a little more caution at Anglo American, though the view remains broadly positive, with four describing the stock as a ‘buy’ and three a ‘strong buy’. But ten simply say ‘hold’ while two advise clients to sell.
AIRLINES
It has been a turbulent time for airlines, and after reaching a five-year high in early February, shares in British Airways owner IAG tumbled almost 40pc over the following two months.
One fear was that mounting trade tensions and a slowdown or even recession in the US would hit demand for transatlantic travel – denting profits at BA and others in the process.
But IAG shares have been gaining altitude in recent weeks and shot higher following the US-China deal to cut tariffs.
Industry experts believe there is further to go. While the shares are trading at around 315p each at the time of writing, analysts on average believe they will rise above 370p in the medium-term, a gain of close to 20pc.
Of the 18 analysts currently covering the stock, 13 say it is a ‘buy’ including seven who rate it a ‘strong buy’. Just one says ‘sell’ while the remaining four recommend that investors hold on to the shares if they already own them.