Markets too pessimistic, says UBS chair Axel Weber

Markets have allowed themselves to become too gloomy about the outlook, especially on China, says UBS chair.

UBS chairman Axel Weber. Picture: Sam Mooy

Sentiment in financial markets has become “too pessimistic”, particularly as US President Donald Trump and his counterpart in China Xi Jinping work towards a resolution of their trade dispute.

That’s the view of UBS chairman Axel Weber, who told journalists on the sidelines of the UBS Greater China Conference he remains upbeat on growth prospects in China and that an all-out trade war with the US can be averted.

“The mood in the market is too pessimistic. Last year, I was surprised as to how optimistic the mood was. And similarly, I am taken aback by how pessimistic the mood is now,” he said.

“I am not at all negative on the long-term outlook for China.

“It is in the interest of the trading partners to actually move to a resolution of these tariff and trade related risks and the two presidents have given a clear signal that they want these disputes resolved.”

Professor of Finance and Economics at Columbia University Dr Shang-Jin Wei told conference attendees there were misconceptions surrounding US attitudes to the trade imbalance with China.

“Many of the actual winners mistakenly think they are losers,” he said, noting that many US companies use cheap parts imported from China to make their products competitive in the world and expand their hiring. But newly hired workers do not attribute their new jobs to trading with China, he said.

Several panellists agreed, however, that it would be in China’s own interests to make concessions to US demands, especially in the area of intellectual property.

The US and China remain in negotiations on the trade issues ahead of a March deadline, when if agreement is not reached, new tariffs are imposed. The prospect of a prolonged trade war is among factors that have fuelled market jitters and caused wild market swings in recent weeks.

Dr Fred Hu, a UBS board member and chairman of Primavera Capital, puts the probability of a trade deal between the US and China being struck as high as 75 per cent because of what he is hearing from Beijing.

“China is a critical part of the global supply chain and there are vast indirect costs,” he said. “I detect a very strong political will by Chinese leaders to end this trade war.”

More broadly, Mr Weber said China had a string of policy options available to stimulate its economy if required.

“They have a number of additional levers, they can move on the monetary policy side. They need to intelligently look at monetary policy stimulus, such as adjusting minimum reserve requirements,” he said.

“There is probably room to manoeuvre on fiscal policy. It probably isn’t on the federal level but more at the level of municipalities and provincial governments.”

Mr Weber also said consolidation talk among European banks was getting louder as parties started to position for any activity.

“If you look at the size of European banks, many of them are trading well below book and so relative to the US banks, size increasingly matters because it’s a fixed cost play,” he said.

“There’s a lot of consolidation talk and a lot of analysis going on and people positioning themselves, but at this stage it is all theories and no actions.”

“It really is about pan European banking, my view is a European champion is what we need.”

Globally, speculation has abounded that Deutsche Bank could be a takeover or merger target for UBS or Commerzbank. But Deutsche chief Christian Sewing has labelled the news reports “fictions”.

The author travelled to China as a guest of UBS