Rising trade tensions mean investor selectivity will be more important By Investing.com

UBS cautioned in a note Tuesday that rising trade tensions between the EU and China will demand greater investor selectivity.

While some Chinese electric vehicle (EV) companies initially rallied on news of lower-band tariffs, UBS highlights the varying impact these tariffs will have. Companies hit with higher tariffs “could face a much higher threshold for profitability” when exporting to the EU.

China’s retaliation against the EU, exemplified by its probe into pork prices, mirrors the economic pain inflicted by China’s previous import ban on Australian wine. However, UBS believes both sides will avoid a full-blown trade war due to their reliance on each other: “China needs external demand, and Europe does not want inflation.”

The report suggests these tariffs may incentivize Chinese EV makers to invest in European factories, reducing tariff burdens. UBS recommends investors maintain a “selective approach” within China’s EV sector and on European automakers.

Within European equities, UBS favors consumer discretionary stocks, particularly established luxury goods brands, despite the risk of higher tariffs impacting their revenue from China. The report also warns of potential risks to decarbonization efforts due to higher tariffs on greentech, recommending investors seeking exposure to this sector focus on “sustainable infrastructure.”