Markets got 'way ahead of themselves' on China trade talks

President Trump's plan to hike tariffs on Chinese goods from 10% to 25% are spooking the U.S. markets. Khiem Do, head of greater China investments at global investments firm Barings, says there was “too much optimism” around the talks.

“We have always had some reservations,” Do told Yahoo Finance’s “The First Trade.”

“We feel the markets are way ahead of themselves in believing that a great outcome will be struck between America and China,” Do said. “As a result, we reduced our equity exposure in the past two months.”

Speaking to Yahoo Finance from Beijing, Do observed that Chinese newspapers have not dedicated a lot of time to the China-U.S. trade tensions over the past 48 hours.

“Western media has covered this in a lot of detail and obviously there’s a lot of emotions involved over the last few days, which you can see in the stock and bond markets,” said Do.

While Trump’s threat to raise tariffs on Chinese goods surprised global stock markets, Do said investors should have priced in some stumbling blocks, especially when it comes to the issue of protecting U.S. intellectual property.

Despite Trump’s threat to escalate the trade war, China has confirmed that its economy czar, Liu He, will go to Washington Thursday for trade talks. It may keep alive hopes that the world’s two biggest economies can still make peace.

China has yet to respond to Trump’s latest tariff threat. “There could be some retaliation, said Do, “but we believe that it won’t be catastrophic. We think it will be a measured response from China.”

Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.