UBS Says US-China Trade War Could Erode 20% of S&P 500

Investors could see steep drops in global stock markets if tensions between China and the United States escalate into a full-blown trade war, analysts at UBS said in a note Friday.

Assuming virtually all trade between U.S.-China is affected by tariffs and other protectionist policies, the Swiss bank calculated that profits for S&P firms would take a 14.6 percent hit, with U.S. and global growth being 245 and 108.5 basis points lower, respectively.

However, the bank noted there would also be second-order effects. These “would be larger, with U.S. multinationals doing business in China also likely to be hurt by China retaliation.” Thus, in terms of company valuations, these would take an additional 9.1 percent hit, bringing a total downside of 21.3 percent for the U.S. benchmark after some further adjustments by UBS analysts.

So far this year, President Donald Trump has imposed new tariffs on Chinese solar panels, washing machines, steel and aluminum, as well as on other imported goods for intellectual property theft. China has retaliated every time. However, there are more potential tariffs on the way, with Trump threatening to impose new levies worth as much as $200 billion.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza