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JPMorgan: These are the market winners and losers of a potential Trump trade war

To play on the possibility of a trade war under President-elect Donald Trump, look to counter-intuitive investments in China and Russia, said Adrian Mowat, JPMorgan's chief Asian and emerging market strategist.

"We could be spending the first half of 2017 looking at the downside of a proper trade dispute," Mowat told CNBC's "Squawk Box" on Tuesday, noting that any potential skirmish would likely be more than just a tit-for-tat with China.

"[Trump is] planning to put in place a corporate tax code which would heavily penalize imports and provide a tax incentive for exports," Mowat said. "This moves away from being a dispute between China and the U.S. to a broader trade dispute."

Certainly, Trump has set his sights on China. On the campaign trail, Trump repeatedly accused China of manipulating its currency in order to give its exports an advantage over U.S.-made goods, and he threatened to slap a tariff of up to 45 percent on Chinese imports.

While China's yuan has fallen against the U.S. dollar in recent months, policymakers on the mainland have been intervening to support the currency, not weaken it.

Trump also angered China by indicating on Sunday that the U.S. was not necessarily bound by the "One-China" policy, a decades-old policy which effectively indicates the U.S. tacitly accepts the mainland has sovereignty over Taiwan.

Earlier this month, Trump accepted a call from Taiwan's President Tsai Ing-wen — a first for a U.S. president or president-elect with any Taiwanese leader since 1979.

But in a counterintuitive move, JPMorgan has gone overweight on China equities, Mowat noted.

"The MSCI China – the China we invest in – is almost entirely domestic earnings. And so what we would think would happen, is if you did have a trade dispute, you would get more domestic stimulus," he said. "That would actually be quite good for Chinese earnings, so perversely China looks more defensive in this environment than perhaps a Korea or a Taiwan, where more of the stock market is composed of exporters."

JPMorgan was also overweight on Russia, not because of the president-elect's repeated praise for the country's leader, Vladimir Putin, but on its potential to sail through a potential Trump-inspired trade war.

Mowat noted that overall, the global economy has improving, citing rising purchasing managers' indexes (PMI), even in long-dampened Europe. With profits improving, markets are rotating into sectors such as materials, consumer discretionary and financials, irrespective of Trump's win, he said.

"Russia sits there as the cheapest emerging market on a forward price-to-earnings basis with a rising dividend yield. The index composition is dominated by financials and obviously by energy, so energy is our strongest call," Mowat noted. "It's also a relatively simple call because it doesn't seem to get caught up in this trade dispute which is much more about manufactured goods as opposed to commodities and energy."

Matthew Lloyd | Getty Images

JPMorgan has also taken some more usual calls to position for a potential trade war, with Mowat noting he's underweight exporters, such as South Korea and Mexico.

But Mowat noted that a potential trade war wouldn't just hit risk premiums in markets in the usual targets, such as China, as these types of disputes are a two-way street.

"It's also going to start to hit the global equity risk premium. The S&P 500 is not just domestic companies. As we've seen when the dollar's been strong, it's been quite a pressure on their earnings," Mowat said. "China could cause a lot of pain to U.S. autos, to the likes of General Electric, to Boeing etc., if it wished to."

—Jacob Pramuk contributed to this article.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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