Too early to call the outcome of US/China trade negotiations

Last week Fathom’s proprietary China Exposure Index (CEI) reached its highest level since the US presidential election. The index is a gauge of the relative share price performance of US-listed firms that have significant exposure to China. The pick-up last week seems to be due to comments from Alibaba founder Jack Ma, who wants to sell more US-made products in China, and to well-received results from one of the CEI’s major constituents; the announcement of a trade deal between the US and China, which contained very little that was new or substantive, had almost no impact. The bigger picture is that, in our view, the US and China are engaged in a high-stakes economic game of chicken, and we expect the US to come out on top: that is what the CEI is pricing in.

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