Aspire Biopharma faces potential Nasdaq delisting after compliance shortfall
Investing.com - The return of trade tensions between the U.S. and China has been a "rude awaking" for equities, leaving broader emerging market-connected sectors particularly exposed, according to analysts at BofA Securities.
Last week, U.S. President Donald Trump threatened to impose additional 100% tariffs on Chinese imports, in response to Beijing’s expanded curbs on exports of rare earths materials.
The White House has also called on China to roll back the restrictions, a demand that Beijing has rejected. As both sides exchange barbs, risks have begun to emerge around a possible meeting between Trump and Chinese counterpart Xi Jinping in South Korea later this month -- a gathering that markets had been homing in on as potential source of clarity in what has been a murky outlook for global trade.
In a note, the BofA analysts said the renewed trade fight between the world’s two largest economies comes at a time of "growing complacency" among investors around the conflict.
Should there be further escalation, the strategists flagged that the "greatest risk" for stocks would be in sectors with ties to China or broader emerging markets in Asia -- namely, semiconductors, mining, automotive, chemicals, and luxury. All of these underperformed last Friday when Trump first unveiled his triple-digit tariff threat, they noted.
Yet the analysts said this scenario is "not our base case," arguing that the interests of both the U.S. and China are "aligned towards resolution."
"China’s actions follow a tit-for-tat playbook, not overreach, and the newsflow has been encouraging," they wrote.
Against this backdrop, the analysts said they remain "negative" on European stocks and "underweight" cyclical versus defensive names, adding that their "main concern" revolves around a deterioration in the U.S. labor market, rather than the trade spat.
Such a slowdown in employment would imply downside risk to the growth outlook that "we do not believe is sufficiently reflected in pricing of the European equity market," they said.
"Our macro projections imply nearly 15% downside for the [pan-European] Stoxx 600 [index] by the second quarter and more than 10% underperformance for cyclicals versus defensives, with our preferred overweights being pharma and food and beverages."