Trade bear David Woo says he wouldn’t touch emerging markets “with a 10-foot pole.”
The Bank of America strategist is the most worried about volatility in global markets -- particularly in the developing world -- since the 2008 financial crisis.
He said the Democratic takeover of the House will weaken Donald Trump’s hand on trade, making a deal with the Chinese less likely, and spur a fight over the U.S. debt ceiling.
“We’ll have a $1 trillion budget deficit, a big fight over the debt ceiling, gridlock and the U.S. economy will be slowing at the same time,” Woo said from New York. “That makes me very nervous.”
Emerging-market equities slid into a bear market this year as escalating trade tensions between Washington and Beijing led investors to flee riskier assets. Over the weekend, China’s vice foreign minister summoned the U.S. ambassador to protest the arrest of Huawei Technologies Co.’s chief financial officer, adding another wrinkle to the spat between the world’s two largest economies.
Here’s what else Woo had to say:
- “The market is starting to realize that this issue won’t go away anytime soon.”
- “You want to buy EM? I wouldn’t touch EM with a 10-foot pole until there’s a resolution between the U.S. and China.”
- “If people were hedging against G-20, they probably shorted the yuan. So on Monday after the news came out, we saw massive unwinding of short renminbi positions. I wouldn’t make too much out of that price action.”
- “Up until now, Beijing has been careful not to let the genie out of the bottle because it’s difficult to put it back in. But we may be slowly reaching that point where it will be more and more difficult for Chinese policy makers to make concessions. There’s no question that the concessions that the White House wants, which you could argue are legitimate, are over IP. And IP is where it gets very complicated.”
On the Fed
- “I love this Fed. I have a lot of respect for Jay Powell.”
- “A few months ago he said something that really impressed me. If you want to know what we’ll do next, don’t listen to what we say, just look at the data. He’s saying the Fed doesn’t know much more about the economic outlook than you, me and anyone walking the street.”
- “I think he’ll be more of a risk manager like Greenspan.”
- Woo said Federal Reserve Vice Chairman Richard Clarida, his PhD adviser, is also good for global markets given his background as an international economist.
On risks next year
- In 2011, “brinkmanship literally took the country to the verge of default and culminated in the U.S. losing its AAA credit-rating status. That year we saw more volatility than we can remember. I think 2019 could turn out to be a little worse.”
- “The only thing I’m confident in is volatility will be high next year.”
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