US China Trade Tensions Set Stage For A Volatile Quarter

1 July 2019

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For investment professionals only. Not for further distribution

European equities, meanwhile, are poised to benefit from the likely peaking of the U.S. dollar on a relative basis to the euro, with interest rate spreads moving from extreme to more normalised levels. We have been carefully contrarian on Brexit and think the region is attractive from a stock-specific perspective.

INTENSIFYING POLITICAL RHETORIC AND THE ASSOCIATED INCREASE IN VOLATILITY

Broadly, we think stocks appear reasonably valued given the current exceedingly low interest rate environment in a world that is going to grow slowly. As the U.S. election cycle nears, we expect the political rhetoric to intensify and plan to be opportunistic around the associated increase in volatility.

Risks

The following risks are materially relevant to the portfolio.
Country risk (China)– All investments in China are subject to risks similar to those for other emerging markets investments. In addition, investments that are purchased or held in connection with a QFII licenceor the Stock Connect programmay be subject to additional risks. Country risk (Russia and Ukraine)– In these countries, risks associated with custody, counterparties and market volatility are higher than in developed countries. Currency risk– Changes in currency exchange rates could reduce investment gains or increase investment losses. Emerging markets risk– Emerging markets are less established than developed markets and therefore involve higher risks. Small and mid-cap risk– Stocks of small and mid-size companies can be more volatile than stocks of larger companies. Style risk– Different investment styles typically go in and out of favour depending on market conditions and investor sentiment.

General Portfolio Risks
Capital risk– The value of your investment will vary and is not guaranteed. It will be affected by changes in the exchange rate between the base currency of the portfolio and the currency in which you subscribed, if different. Equity risk– In general, equities involve higher risks than bonds or money market instruments. Geographic concentration risk– To the extent that a portfolio invests a large portion of its assets in a particular geographic area, its performance will be more strongly affected by events within that area. Hedging risk– A portfolio’s attempts to reduce or eliminate certain risks through hedging may not work as intended. Investment portfolio risk– Investing in portfolios involves certain risks an investor would not face if investing in markets directly. Management risk– The investment manager or its designees may at times find their obligations to a portfolio to be in conflict with their obligations to other investment portfolios they manage (although in such cases, all portfolios will be dealt with equitably). Operational risk– Operational failures could lead to disruptions of portfolio operations or financial losses.

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