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'Take profits very quickly' on any US-China trade deal rally, Stephen Roach advises

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If stocks rise on trade deal, Stephen Roach says 'take profits very quickly'

One of the world's leading authorities on Asia expects a U.S.-China trade deal, but suggests any market rally off the news will be fleeting.

Yale University senior fellow Stephen Roach, who spent five years as Morgan Stanley Asia chairman, believes investors will ultimately be disappointed.

"When the dust settles, there'll be some realization that this is not a fundamental breakthrough — that the conflict will be enduring," he said Wednesday on CNBC's "Trading Nation." "Take profits very quickly, which would be my sense."

Roach, who has been critical of the Trump administration's tariff strategy with China, doesn't see a resolution having a meaningful effect on trade between the countries. The latest round of talks resumed Thursday in Beijing.

China would likely agree to multiyear purchases for agriculture, soybeans and energy and other categories, according to Roach. However, he contends that won't be enough to keep, or even get, U.S. investors excited.

"The bulk of the progress will be on the bilateral trade front, which quite frankly as an economist I find the least appealing because that's really a reflection of our own macro-economic imbalances," he said. "If we can squeeze the Chinese piece, that'll just send those goods to another higher cost producer. So this is sort of a cosmetic deal, at best. But it's a deal, and it's better than nothing."

Roach expects a trade resolution will come next month, but not because China feels it's pushed into a corner due to a slowing economy. He isn't blaming the U.S. tariffs for China's economic issues and believes officials there are bringing in adequate fiscal stimulus to cope with sluggishness.

"I don't think they're in desperate shape," Roach said. "The downside pressures are transitory and they'll be able to stabilize and then show some gradual improvement."

The White House did not respond to a request for comment.

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A US-China trade deal won't fix fundamental issues, Stephen Roach says