Trade Talks to Eclipse All as Emerging-Market Bulls Take a Hit

LAGOS (Capital Markets in Africa) – The looming U.S.-China trade talks may be set to reveal how complacent traders have been about the dispute just as the rally in emerging markets loses steam.

Last week’s sudden retreat came as representatives from the world’s two biggest economies prepared to discuss the standoff, with President Donald Trump saying he wouldn’t meet his Chinese counterpart Xi Jinping before a 90-day truce ends March 1. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are leading a delegation to Beijing, and if Trump deems that negotiations are moving forward, he may be tempted to extend the deadline. Otherwise, tariffs on $200 billion of Chinese goods will more than double.

 “Sentiment for the rest of the month is likely to be heavily influenced by the ongoing U.S.-China trade negotiations,” said Paul Greer, a London-based money manager at Fidelity International. “While we are still bullish on the asset class based on valuations, technicals and the exogenous environment, we think the market may pause for breath over the coming two to three weeks.”

The MSCI Emerging Markets Index declined last week, ending its longest winning streak in a year. The gauge had finally broken through its 200-day moving average late January, only to be dragged below that level on Friday. The last time the measure fell below the 200-day level was in May, about four months before it sank into a bear market.