Since October, the trade friction between China and the United States has escalated again, and Trump's "Taco deal" strategy has reappeared. Whether there are investment opportunities before and after "Taco" and which buying opportunities should be paid attention to has attracted market attention.
In October, trade frictions between China and the United States escalated again. Following renewed pressure from the United States on China in certain areas and China's countermeasures, on October 12 local time, Trump posted on social media, "Don't worry about China, everything will be fine," sending a signal of easing tensions.
In fact, similar scenarios have played out multiple times since April, with Trump's tariff negotiation model of first applying pressure and then making concessions leading to a recurrence of the "Taco deal." Most institutions believe that this round of trade friction may be a "Taco deal."
The term "TACO" was first coined by Robert Armstrong, a columnist for the Financial Times, in early May. It stands for "Trump Always Chickens Out," referring to an investment strategy where Trump's tariff threats trigger market panic and a subsequent market rebound, allowing investors to profit by buying low and selling high.
Judging from the situation over the past month, the US's shift in attitude from pressuring China in certain areas to proceeding with the China-US summit as scheduled is consistent with the behavioral pattern behind this strategy.
Based on the views of various institutions, three key points are worth noting in this round of trade friction. First, compared to April, the impact of this round of trade friction is smaller, and the market is expected to be more resilient. Second, Trump's proposed 100% tariffs are set to take effect on November 1st, after the APEC summit, and he did not deny the possibility of dialogue with China at the APEC summit when imposing the 100% tariffs, making the APEC summit a crucial juncture. Third, looking back at past experience, the interval between Trump's threats and subsequent reversals is not long, which also means that the window for a decline is limited.
CICC Wealth Management cautions that in the current global landscape of "two suns" (US and China), regardless of the short-term negotiation outcome, the balance of power is only temporary, and structural frictions between China and the US will persist. For ordinary investors, blind optimism or pessimism is unwise. Staying vigilant and having contingency plans is more important than reacting passively.
What are the similarities and differences between this round of trade frictions and those in April?
As trade tensions escalated again around the National Day holiday, the market compared the current situation with that of April this year. Multiple institutions indicate that the market is clearly more experienced in coping with the situation in April, and the impact has been significantly reduced.
Changjiang Securities The strategy team pointed out that the extent to which the tariffs exceeded expectations was relatively small. Since the market has accumulated a certain degree of policy adaptation and learning since the trade war began in 2018, the resulting volatility is expected to be less than the sharp fluctuations caused by the "reciprocal tariffs" in April.
CICC Wealth Management further analyzed the unique characteristics of the current market. Compared to April this year, the market has more psychological preparation and experience in dealing with the situation. However, the difference is that in April, market valuations were still at a relatively low level, while A-shares have accumulated a lot of unrealized gains. After the surge in July and August, the market itself is also facing the need for internal adjustment.
Huachuang Securities The strategy team has identified more detailed changes in the game theory framework. The similarities in this game are that the US initiated the conflict, and China directly confronted and retaliated. The differences lie in the shift in responses from uncertainty to a more nuanced approach. Specifically: first, the range of products involved has broadened to a more precise definition; second, China is leveraging its strengths in key areas; third, the US is shifting from multi-front warfare to focusing solely on China; fourth, both sides' economic environments have demonstrated resilience; and fifth, both sides have more ample monetary and fiscal space.
CITIC Securities Taco's trading logic remains intact; pay attention to marginal constraints.
CITIC Securities Wealth Management (Hong Kong) believes that while the US-China relationship is causing increasing disruptions, the trading logic for TACO remains intact.
Regarding US-China relations, Trump reiterated his threats of tariffs and export controls, but as of October 13th, his tone had softened somewhat, with signs of a TACO emerging. The APEC summit in South Korea on October 28th could still be a potential catalyst for a US-China meeting. The underlying logic of TACO transactions lies in realistic choices under marginal constraints. Going forward, attention must be paid to three key marginal constraints: the state of the US economy, the Supreme Court ruling, and the needs of the midterm elections. These could have a crucial impact on the US-China rivalry.
This power struggle is more likely a bargaining chip for both sides to leverage in negotiations ahead of the APEC summit. In the fourth quarter, the US and China are more likely to maintain a stable state of mutual restraint. Therefore, the intensity and duration of this power struggle are expected to be limited.
GF Securities The TACO trade presents another buying opportunity.
Guangfa Securities Research believes that this is likely to be a typical "Taco trade" and offers four points for consideration.
Firstly, since April, there have been multiple instances of TACO trading globally, including Trump's repeated threats and postponements of tariffs, his threats to fire Powell followed by immediate reversals, and his threats to impose tariffs on copper while exempting refined copper. In hindsight, the declines caused by TACO trading often presented good opportunities to increase positions, whether in stocks or commodities.
Secondly, the current market environment differs from that of April in that the domestic "loose monetary policy + loose fiscal policy" dual-loose tone is more clearly defined, and investors have fresh memories of the "TACO trading" round in April and have experience in dealing with it; however, the difference lies in the shift in the stock market's offensive and defensive positions, with current valuation levels rising compared to April.
Thirdly, based on a review of historical bull markets that have fallen below the 20-day moving average, if this time it is determined to be TACO, then the Wind All A Index will have relatively favorable support between the 20- and 30-day moving averages.
Fourth, drawing on the experience of April, the medium-term trend should still focus on the industry trends in technology. If this round of market declines is due to risks such as liquidity shocks, the most recommended investment remains in AI computing chips and semiconductors related to domestic substitution. Industries such as equipment, semiconductor lithography machine supply chain, and AI edge applications.
Changjiang Securities : Seize the opportunities in Hong Kong's technology sector
The strategy team at Changjiang Securities predicts that major asset classes will face short-term pressure due to tariffs, but the long-term impact of tariffs will be limited.
In the long run, the marginal impact of tariffs will diminish, and major asset classes will return to their intrinsic value. US stocks may refocus on the technology sector, particularly artificial intelligence. , cloud computing Sectors such as semiconductors are expected to drive the overall rise in US stocks; the US dollar index and the USD/CNH exchange rate are expected to be under pressure due to rising expectations of a Fed rate cut; and gold is expected to continue its upward trend against the backdrop of central bank gold purchases and ongoing geopolitical frictions.
Whether the US-China trade friction will impact Hong Kong stocks is also a major concern for the market. The strategy team at Changjiang Securities believes that the escalation of tariffs will have a limited impact on the long-term trend of Hong Kong stocks, and a pullback may present an opportunity to increase holdings.
From April 1st to October 10th, the three major Hong Kong stock indices have recorded significant gains, and current valuations are slightly higher than in April. However, in terms of industry structure, the current weighted stocks in the Hong Kong stock market are mainly banks. The sectors include discretionary retail, software services, and non-bank financial institutions, primarily large banks , major internet companies, wafer foundries, leading automakers, and insurance companies. As well as securities firms, their overall exposure to exports to the US is limited.
From a liquidity perspective, Hong Kong stocks are expected to continue to benefit from the Federal Reserve's interest rate cut cycle. In the short term, due to market panic and a decline in risk appetite, the three major indices may experience some pullback, with the Hang Seng Tech Index potentially being more affected by the reduced risk appetite. However, in the medium to long term, there is still room for negotiation before the tariffs are finally implemented. This may be a negotiating tactic used by Trump to exert pressure before formal talks, and it remains a "TACO deal." Short-term pullbacks will present an opportunity to increase allocations to technology and other sectors.
Western Securities Don't rush to trade TACO; focus on the APEC summit at the end of the month.
According to the Western Macroeconomics team, Trump's decision to set the tariffs for November 1, coinciding with the APEC summit where the leaders of the two countries could meet, does leave room for negotiation and de-escalation. However, given the easing of his constraints, he is likely to continue to exert pressure in a spiral.
Therefore, the Western Macro team believes it's inappropriate to completely replicate the April experience and create a path dependency of "Trump pressure → market adjustment → TACO → market surge." The risk factor of Trump cannot be completely ruled out before substantial progress is made in Sino-US negotiations. Regarding asset classes, they continue to be long on gold and overweight A-shares and H-shares. Focus on controlling volatility; sector allocation recommendations include non-ferrous metals, which offer higher certainty. High-end manufacturing, and mass consumption at a low level.
Tianfeng Securities : TACO trading may become increasingly clear
The strategy team at TF Securities stated that looking ahead, for China, the Fourth Plenary Session of the 20th CPC Central Committee will be held next week, and the Central Economic Work Conference will be held in December. Domestic policies will enter a period of intensive catalysts, and after the implementation of domestic policy plans, measures against the US may become clearer.
For the US, the current government shutdown is a more pressing issue that needs to be addressed, Trump's loss of the Nobel Prize, and the reunion of the Russian and US presidents after nearly two months.
Overall, China and the United States still have close and extensive economic and trade cooperation. At present, China and the United States do not have the basis for decoupling. The market reaction is also more rational. The market's learning effect has reduced the marginal effect of tariffs. Before the APEC meeting at the end of October, the trade leaders of China and the United States held a video call and agreed to hold a new round of China-US economic and trade consultations as soon as possible. Trump's TACO deal may become clearer.
(Article source: CLS)
