The Strategist

Analysts: Trump tariffs hinder investments in Europe and developing countries

06/14/2018 - 15:51

International investors are concerned about involvement of Europe and Canada in the trade war with the United States. Therefore, they are reducing investments in shares of European companies and companies of other developed countries. At the same time, the investors are willing to increase their investments in US assets, which will benefit both from the trade war and from tightening of the monetary policy of the US Federal Reserve.

Michael Vadon via flickr
Michael Vadon via flickr
The June survey of managers, conducted by analysts at Bank of America Merrill Lynch (BofA), indicated the growing fears of investors about the global trade war. The survey involved 235 managers that manage $ 684 billion in assets in total. According to the survey, every third manager said that the deterioration of trade relations in the world is a key risk with unpredictable consequences for the world economy. A month earlier, this opinion was held by every fourth respondent, and the key risk was the Fed and the ECB’s thoughtless steps to change the monetary policy.

Investors are concerned about the decision of the United States to expand the list of countries in respect of which protective duties on imports of steel and aluminum have been introduced since June 1. Recall that Washington on March 23 announced the introduction high duties for all countries that supply steel and aluminum products in the US. At the same time, President Donald Trump temporarily withdrew Australia, Argentina, Brazil, Canada, Mexico, the Republic of Korea, as well as the EU countries, from this list by the end of May. In early June, the head of the White House decided not to extend these exceptions to Canada, Mexico and the EU. In response, the affected countries reacted by introducing reciprocal duties on American goods. It is obvious that investors in general expect a negative impact from the trade war on the global economy and company profits.

In such conditions, investors are cautious about investing in European assets. In June, the number of global investors with a preponderance of regional shares was only 13% higher than the number of those who hesitated. This is the minimum since July 2016, when the UK decided to withdraw from the EU. At the beginning of the year, there were almost 1.5 times more of optimists. The results of the survey are confirmed by the Emerging Portfolio Funds Research (EPFR) data, according to which over the past four weeks investors withdrew almost $ 12 billion from European stocks. Perhaps interest in European assets is also declining because of political events in Italy that call into question previous assessments economic growth.

The attractiveness of investments in emerging markets is also diminishing. According to the EPFR, for the past month the funds, whose investment policy is oriented to emerging markets, have lost almost $ 3.2 billion. The worst dynamics among developing countries as a whole was showed by Russian funds. For four weeks, they lost more than $ 600 million.

Investors now prefer investing in US assets. The number of global investors that have increased their investments in US stocks, for the first time since March 2017, exceeded the number of hesitant. A month earlier, there were 15% more of sellers. International investors believe that as a result of the trade war, American corporations should ultimately find themselves in the best position. In addition, according to portfolio manager for international markets of General Invest Felipe De La Rosa, investors are actively increasing their investments in US equities against the backdrop of a growing Fed rate, which also increases their attractiveness.