These are four signs equity markets have trade war jitters

Singapore port and Sentosa islandSingapore port and Sentosa island

While trade tensions haven’t yet caused dramatic global market moves yet, there are at least four signs that equity markets are getting jittery over a possible global trade war, Capital Economics said in a note this week.

  1. The global MSCI Industrials Index has fallen around 5 percent, nearly twice as much as the broader market, it said. “As industrial firms typically generate a large share of their revenues outside of their domestic market, and are also highly cyclical, they are particularly vulnerable to a trade war,” the note said.
  2. Euro-zone equities have underperformed U.S. equities significantly since the start of May, despite support from the euro weakening against the U.S. dollar, it said. “Euro-zone firms on average generate a larger share of their revenues abroad than their U.S. peers,” the note said, adding that makes them more vulnerable to rising trade tensions.
  3. Despite a fall in sterling, U.K. small caps are faring better than the country’s large caps, it said. The U.K.’s large firms generate a lot of their revenue abroad, making them more vulnerable to a trade war, while that market’s small caps tend to domestically focused, it said.
  4. Chinese equities have “fared particularly badly,” it said. “As the simultaneous weakening of the renminbi suggests, this probably reflects a more general concern about the Chinese economy amid rising trade restrictions in the U.S.,” Capital Economics said.

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