The trade conflict between the U.S. and China has the potential to globally change the existing balance of power. Which countries, regions, and sectors could benefit from possible shifts in trade flows? Vontobel launched a product that allows clients to participate in the potential changes.
After studying the various scenarios that could emerge from the ongoing U.S.- China trade conflict, Vontobel has developed a tracker certificate that focuses on those countries and sectors that could be among the profiteers from the reorganization of supply chains, the bank said in a statement on Wednesday.
The trade dispute between the superpowers is only part of a larger, deeper geopolitical shift. Ultimately, it's about the question of who will become the digital superpower of the future, according to a joint study by Vontobel and the independent American think tank Eurasia Group.
Index Universe
In the study, Vontobel and Eurasia Group examine various scenarios with their respective possible effects on countries, regions, and sectors that could be affected by the shifts in power. Following the study, Vontobel has recently launched the «Vontobel Trade Conflict Winners Emerging Markets Index» which includes equities from selected emerging markets.
The index universe comprises equities of companies in emerging markets that are valued using a point system based on more than 100 quantitative indicators. The index composition is adjusted at least every six months.
Likely Beneficiaries
In the most likely scenario arising from the trade conflict, the trend towards shorter trade routes could make Latin America an attractive production location for the USA and Southeast Asia an attractive location for China.
Countries such as Vietnam, Indonesia, Thailand, Bangladesh, Taiwan, Malaysia, and Mexico could benefit the most. Since the beginning of Sino-American trade tensions, foreign direct investments in some of these countries have already reached record levels.
Recent Developments
Vontobel has back-tested the index in its current composition. According to the test, the index strategy would have been confirmed since the beginning of 2018. This test says nothing about future performance, and simulations are not reliable indicators of future performance.
However, it does provide an indication: According to the simulation, the index would have moved in line with the MXFE Index until mid-2018, for example. From then on - especially as the trade conflict intensified further - the Vontobel Trade Conflict Winners Emerging Markets Index uncoupled itself and clearly outperformed a benchmark index, the MXFE.
