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.
- 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.
- 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.
- 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.
- 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.