Wall Street is overestimating the benefits of a U.S.-China trade agreement, according to one of the world's leading authorities on Asia.
Stephen Roach, who lived in China from 2007 until 2012 during his tenure as chairman of Morgan Stanley Asia, is warning investors the ultimate deal won't deliver, and stocks will sell off.
"To the extent that 'phase one' is a big event that the markets are looking at, I think the news will be far more disappointing than the rumor of a deal," the Yale University senior fellow told CNBC's "Trading Nation" on Monday." "It may be a classic case of buying on the rumor."
The Dow, S&P 500 and Nasdaq locked in another round of record high closes on Monday, and a major driver was speculation the U.S. and China were closing in on the first part of a trade deal.
Roach is confident Washington and Beijing will sign a "phase one" agreement. However, he predicts it will be a one-and-done deal.
"There is a strong political incentive on both sides to cut a deal. I think we'll look back on 'phase one' and wonder why we called it 'phase one' because we're unlikely to see phases two, three four and anything else," he said. "This deal will be cosmetic [and] will accomplish very little for the American worker."
If stocks rally after a trade agreement, investors should take profits quickly because it's unlikely to last, he has said.
"We have trade deficits with over 100 countries right now, that's a hollow accomplishment to say the least," he said.
According to Roach, progress on trade with China will not meaningfully rev up global growth. With or without an agreement, he thinks the significant slowdown gripping the global trade cycle will persist.
"It's going to be hard to restart that on a dime. The outlook for trade over the next year, I think, is still very, very subdued, and that'll affect not just China but all economies in East Asia," Roach said. "It's already affecting Mexico which is technically back in recession, and it'll have an impact on trade sensitive economies in Europe, especially Germany."