US stocks ended the day down 0.7% on 3 December after US President Donald Trump said he has no deadline for when he wants to reach a trade deal with China. President Trump’s comments suggest no urgency ahead of a 15 December deadline after which the US administration has threatened to impose more tariffs on Chinese goods. Weakness spilled over into Asia on Wednesday with the Nikkei 225 falling 1.1%, although in morning European trading, the Euro Stoxx rebounded 1.1% after dropping 2.6% this week.

Political choices will be a key driver of market performance in 2020, and the trouble is that they are exceptionally difficult to predict and price. A Bloomberg story early Wednesday on the US and China instead being closer to a deal further highlighted that unpredictability. Rather than positioning in the hope or expectation of a specific outcome from trade talks, in the year ahead we advocate reasserting some control over your portfolio by choosing investments less dependent on the outcomes from political choices.

Concretely, that means in equities:

* Choose domestic over global. It is important for investors to diversify globally to reduce their exposure to individual risks. But we also think that countries and sectors that derive a high proportion of their revenues domestically are likely to be more stable choices in a more protectionist world. In this regard, we like the US and Chinese markets, and are cautious on the Eurozone.

* Prefer consumer to business spending. While consumers ultimately bear the cost of higher tariffs, their small spending decisions are less vulnerable to geopolitical uncertainty than major business capital expenditures. Recently, manufacturing has borne the brunt of the trade-related slowdown, while consumer-facing sectors have proved more resilient. We like the US consumer discretionary sector, while materials and IT are our least preferred sectors globally.

* Look for future beneficiaries. If the US-China tensions persist, emerging market infrastructure could offer opportunities as supply chains adjust and boost demand for infrastructure outside China. Some companies are already shifting their supply chains to Vietnam, Malaysia, and Thailand, promising economic and market upside. The rising relative cost of labor in China is also driving a transition toward markets like India. More generally, we expect greater infrastructure spending to take place across Southeast Asia in 2020, particularly in the Philippines, Malaysia, and Thailand.

But we still see both sides as having incentives to come to a deal. China appears willing to accept a phased removal of tariffs. President Trump's Republican party has suffered recent electoral setbacks and we believe he is unlikely to risk provoking an economic downturn ahead of the 2020 election in November. With protectionism becoming a feature of the year ahead, trade-exposed markets in North Asia could rally if an agreement to roll back tariffs is reached.