Heightened tensions between the US and China are still unlikely to derail global growth but fund managers are watching for any escalation that could hit asset valuations, the director of QIC’s global multi-asset team says.

Allison Hill, who will speak about geopolitics and market volatility at the upcoming Investment Magazine Fiduciary Investors Symposium in November, says geopolitical tensions and the slow notching up of a trade war between the US and China are factors her team are watching closely.

Hill’s multi-asset team manages about $50 billion on behalf of various entities.

The current 10 per cent tariff the US imposes on US$200 billion ($282 billion) in imports from China will have a relatively modest impact on growth, based on modelling by QIC chief economist Matthew Peter, Hill says. But the trade wars could escalate. There are further announced tariffs, on US$265 billion ($374 billion) in imports, to be implemented towards year’s end. This raises the risk of even further tariffs.

“I think a trade war has the potential of being quite significant,” Hill says. “If it extends further, we could see other countries impacted by default due to impacts on inflation, relative pricing and so on. That could be something that does have an impact on growth and this would unnerve markets.

“This type of activity will also have an impact on consumer sentiment and ultimately company profitability. We are watching that quite closely and thinking about what could mean for markets over the next phase.”

Economist Peter has done a range of modelling based on the new tariffs and how they will affect US and global growth, Hill says. So far, the outlook is benign.

“It’s a relatively minor impact at this stage,” Hill says. “If it stays at this level, it is a detriment but it’s not going to derail the global growth story, and I think we’ve seen that with the IMF numbers coming out recently, it’s downgraded the global growth estimate just a touch; we’re still in a relatively robust environment.

“But there will be a problem if it escalates. If China and the US get into a tit-for-tat environment, that will start spilling over into global markets as well and it will probably have an inflationary impact.

“That could be problematic for both equity market returns and, indeed, how the US Fed might manage that environment in terms of wanting to maintain growth but having to raise rates faster than previously anticipated. So that’s something we’re watching for.”

Beyond geopolitics, markets are facing a range of historically new challenges, such as assets that are relatively expensive by historical standards and the unwinding of quantitative easing and its impacts – a phenomenon without historical precedent.

In response, Hill has been doing much work in alternative assets, including alternative risk premia and insurance.

“The reason behind that is trying to get additional sources of return that are not directly correlated with equities so we can continue to maintain return expectations in the portfolio and also increase diversification,” Hill explains.

Allison Hill will appear in a panel discussion titled “Geopolitics, Markets and Volatility as an Instrument of Truth” at the Investment Magazine Fiduciary Investors Symposium in Healesville, Victoria, on November 19-21.

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