(Bloomberg) -- Chen Zhao, known for his prescient bets against tech stocks in 1998 and in favor of U.S. equities in March 2009, says it’s time to buy riskier assets on the prospect of a U.S.-China trade deal.

Zhao’s latest contrarian call is based on his theory that Donald Trump’s tariff threats are mostly driven by the president’s insistence that the Federal Reserve cuts interest rates. The thinking is that jawboning on China will lead economists to lower their growth forecasts and compel the Fed to respond. That, in turn, would probably boost the U.S. stock market, which Trump views as a key selling point in his 2020 reelection bid.

Zhao said he expects a U.S.-China deal early next year, before the campaign’s home stretch. His view is at odds with investors and strategists at JPMorgan Chase & Co., Goldman Sachs Group Inc. and TCW Group Inc., who say the base case is a protracted trade war between the world’s two largest economies.

“Trump is probably playing a shrewd game,” said Zhao, co-founder of Montreal-based Alpine Macro and a former co-director of macro research at Brandywine Global Investment Management. “Once the Fed cuts, tariffs will get lowered. All risk assets will benefit. We’ll have no trade war, and stocks from the U.S. to China will go up. There’s a very high probability of that.”

The 59-year-old Beijing native said his views are shaped by classmates from the Chinese capital’s Central University of Finance and Economics who now serve as government officials in China, as well as his network on Wall Street and in Washington.

Trump said Tuesday he’s personally holding up a trade deal with China, a day after attacking the Federal Reserve for not listening to his plea for rate cuts. Last week, Fed Chairman Jerome Powell opened the door to a cut if trade tension prompts U.S. businesses to scale back investment and hiring.

Zhao recommends investors pursue a barbell strategy, with one side geared towards high-risk assets and the other devoted to 10- and 30-year U.S. Treasuries. He advised clients to buy 10-year Treasuries in March, before their big rally. His other top picks include South Korean stocks and Mexican equities. Zhao also favors Hong Kong-listed H Shares, saying any fallout from this week’s dramatic protests in the former British colony is overblown.

“Of course, the barbell strategy won’t work if you have inflation -- both sides will be taken to the cleaners -- but I think the risks are skewed towards the deflation side,” he said. “I’m very comfortable to advise our clients to be barbell, barbell, barbell.”

To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net

To contact the editors responsible for this story: Julia Leite at jleite3@bloomberg.net, Alec D.B. McCabe, Philip Sanders

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