Cape Town – While escalating trade tension between the United States and China is bound to negatively impact emerging markets globally, there are also "significant" long-term opportunities in emerging markets like South Africa once the political tide turns again.
This is the view of Old Mutual joint fund manager for global emerging markets, Siboniso Nxumalo.
The US trade deficit with China, over $370bn in 2017, was a central issue in discussions between the two countries, Nxumalo told Fin24.
However, he added, the impact of trade tensions did have the effect of decreasing asset prices in emerging economies, which would be ripe for purchase now and increase in price later, when tensions decreased.
According to Old Mutual Emerging Markets, escalating fears drove Latin American currencies lower, knocking blue-chip stocks across the region, while a sell-off in Chinese stocks drove Asian equities to a four-month low.
The discussions taking place between China and the US are a significant flash-point in the administration of US President Donald Trump. China enjoys a trade surplus, and while it is looking for consumer markets, it is developing a burgeoning consumer market of its own domestically.
Closer to home, Minister of Trade and Industry Rob Davies, as well as trade analysts, have warned that tariffs from the United States on aluminium and steel would cost local jobs in SA.
With an isolationist and inward-looking policy to America's role in the world, Trump’s administration creates a global economic leadership vacuum that President Xi Jinping’s China has indicated it is eager to fill, Nxumalo argues.
"Trump is an isolationist who is negotiating on the side of Americans only. In such negotiations it means a lot of pulling back, and [shifting] relationships that are mutually beneficial to being all about America.
"If you look at China, they have been very calm and measured about this," said Nxumalo.
Speaking on behalf of the emerging markets boutique of the Old Mutual Investment Group, Nxumalo said Old Mutual Investment Group’s emerging markets portfolio looked for long-term benefits and did not consider assets on the sole basis of "what politicians say tomorrow".
"The fund looks to invest in emerging markets and clients and companies. Emerging economies have large young populations where we invest and look for spaces to grow.
"When we see talk like this, we get excited because we take a longer-term view than just what happens tomorrow," said Nxumalo.
Nxumalo predicted that in upcoming discussions, the US would try to strong-arm China into a deal that would serve the US better, while China would try to continue to extract benefits.
"The complexities go further because of other factors, such as the fact that China can manufacture in the US, but the US struggles to thrive in the same way in China.
"Trump has a point in that this is a one-way relationship," he said.
He added that while markets don't like uncertainty, in an environment market with much change, investors see the risk of short-term uncertainty but also the significant long-term opportunity.
"After Trump, who is a temporary issue, the global economy will continue to function as it does, and will probably grow. China's rise and growth in wealth and consumption, if assets are purchased at lower evaluation, will be an advantage," Nxumalo said.
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