What do Trump's trade tariffs mean for markets?

--  |   13/03/2018 Text size  Decrease  Increase   |  
email_fwd
<p><strong>Emma Wall</strong>: Hello, and welcome to the Morningstar series, "Market Reaction." I'm Emma Wall and I'm joined today by Nick Watson, multi asset fund manager for Janus Henderson, to talk about Trump's trade tariffs.</p> <p>Hi, Nick.</p> <p><strong>Nick Watson</strong>: Hi, Emma.</p> <p><strong>Wall</strong>: So, Trump has proposed some tariffs on commodities and it's got the world nervous. What does he propose?</p> <p><strong>Watson</strong>: Sure. So, for the time being, Donald Trump has proposed tariffs of about 25% on steel imports and 10% on aluminum imports into United States. So, that's sort of in the context for trade war, which markets have now become very concerned about. Markets don't like uncertainty and given the current volatility in markets, markets are not going to be enthusiastic about anything that might hinder economic growth going forwards.</p> <p><strong>Wall</strong>: And it shouldn't be too much of a surprise because it is this kind of protectionist stance which he got elected for. But of course, markets have reacted badly, in particular, emerging markets and Asia?</p> <p><strong>Watson</strong>: Correct. I think if you look at the markets which have responded most negatively to this, it's been those more cyclical markets, those markets which are more exposed to global economic activity. So, you mentioned emerging markets; Germany and Japan have both also struggled amidst this. You are completely correct to say he was elected off the back of this type of policy.</p> <p>And to be honest, we shouldn't really be surprised. A lot of what he has tried to do, whether it's immigration reform, fiscal stimulus or tax reform, he has all managed to get those through. It's also worth observing that he doesn't have to rely on Congress to get this new policy coming through.</p> <p>The final thing I'll say, there is an election coming up in Pittsburg, I think it's on Tuesday, in which the Republican Party is looking potentially like they might lose, and Pittsburg is a very blue-collar, working class base. So, it may well be the case that Donald Trump is trying to rile up some enthusiasm amongst his usual electoral support to try to get that election win for the Republican Party.</p> <p><strong>Wall</strong>: And in the short term, as you mentioned, we have seen market volatility across Asia and German and Japan. But long-term, if he does get these proposals through, what are the markets that will be impacted? Presumably, the commodities sectors will be impacted?</p> <p><strong>Watson: </strong>Yeah. And I think that's how you can have a read through to U.K. market. As we all know, the FTSE 100, about 70% of revenues come from outside the U.K. And you look at some of the large resources companies, let's say, your Glencores, or your Shells or BPs, they do have a read through to the commodity price rather than necessarily what's happening in the U.K. economy or the U.K. market. So, that could be this sort of transfer mechanism that has an impact on the U.K.</p> <p>On a more global basis, if this trade war rhetoric did really ramp up, and that's not necessarily what we are anticipating, but that's certainly something we need to be cognisant of, again, those more cyclical markets, Japan, emerging markets themselves, could be more vulnerable.</p> <p>The final point I'll make on that is Donald Trump has been very assertive that China is a trade sort of influence, if you like, and he is trying to make sure that there's not this imbalance between the two countries. In terms of the actual policy that he has announced, China doesn't really gets affected here.</p> <p>China does produce relatively cheap steel and relatively cheap aluminum, but that doesn't actually feed through to the U.S. The biggest of countries who would be affected by these tariffs are more of their own allies. So, you'd be talking about Mexico, you'd be talking about Canada. So, those are countries that would be more affected by this rather than maybe the target, which his political base is hoping for.</p> <p><strong>Wall</strong>: And you did mention the phrase trade war there. Do we anticipate, if this goes through, that there will be a sort of retaliation from some of those markets which then it could, of course, make more seismic impact globally?</p> <p><strong>Watson</strong>: Yeah. And that's where the read through comes through to global economic backdrop. At the moment, global economic growth is pretty broad-based. It's pretty resilient, which is quite constructive for markets. But if you were to see the situation deteriorate, I think the EU has come out and said that they might levy tariffs on Levi jeans, for example. China could potentially look at doing something around soybeans. So, you can see how that naturally expands out into a wider economic shock.</p> <p>The other point I'll make is that these tariffs are actually quite inflationary. So, for the U.S. consumer, that's not necessarily an immediately good news because their aluminum production base needs to take some time to get fired up. Some of it will have a chilling impact on economic growth while boosting inflation which is not necessarily a dynamic that markets are going to respond particularly favorably to.</p> <p><strong>Wall</strong>: Because higher inflation means more Fed rate rises?</p> <p><strong>Watson</strong>: Completely. And it's almost looking back at what was 2017 like. So, 2017 we had positive economic growth, muted inflation and you had supportive central banks in terms of maintaining diverse monetary policy and QE. And through that environment markets did fantastically well.</p> <p>What have we seen through 2018? Well, the growth is still there, but we've also had inflation come through. So, markets are now starting to realise they need to reprice some of these expensive parts of the market. Government bonds have sold off. You've seen some of the bond proxies have a tough time as well. So, that policy part of the fantastic markets we saw in 2017 is now actually having the opposite effect on markets. Talking about the FTSE All-Share, down 6% or 7% year-to-date. Yes, growth is good, but you don't have that same accommodative support from either government policy or monetary policy.</p> <p><strong>Wall</strong>: Nick, thank you very much.</p> <p><strong>Watson</strong>: You're welcome.</p> <p><strong>Wall</strong>: This is Emma Wall for Morningstar. Thank you for watching.</p>

Video Archive...

Schroders: China shares won't be derailed by Trump tariffs
21/06/2018  Schroders' Jason Yu says protectionism will increase market volatility but the fundamentals remain strong for Asia equities.
Why US share market crash is not inevitable
20/06/2018  The lack of euphoria in the market today may mean the US stock market avoids a severe decline, according to one of the world's most influential investors, Jeremy Grantham.
When an active investing strategy beats passive
19/06/2018  The value of a good asset manager comes to the fore amid market volatility and in assessing recent company listings, says Fidelity's Kate Howitt.
Trade terms, retail disruption among key investor risks: PIMCO
18/06/2018  A shift toward restrictive trade policies among some developed markets ranks among the primary risks for fixed income, while opportunities include US housing and European financials, says PIMCO's Mohit Mittal.
Bullish on Qualcomm, bearish on Tesla
15/06/2018  Global fund manager Antipodes is upbeat on mobile phone technology and natural gas, but less so on software companies and Tesla.
VIDEO | Investors hoard cash at their peril, says JP Morgan
07/06/2018  When it comes to thinking about retirement, a survey of Hong Kong investors mirrors errors made by investors in the developed world at large: they are saving too little and relying too much on cash, says JP Morgan's Wina Appleton
What Trump's trade policies mean for investors
07/06/2018  Professional and individual investors alike can be bamboozled by trade and tariff shifts, but need to remember talk doesn't necessarily mean action, explains JPMorgan's Hannah Anderson.
US fiscal environment a perfect storm: Franklin Templeton
06/06/2018  Why the Federal Reserve needs to lift rates "meaningfully higher", and where investors can find lesser-known ESG investment opportunities.
Royal commission, ESG and important macro themes
30/05/2018  Weeding out lying, cheating and stealing is just part of the company governance analysis performed by fund managers, explains JP Morgan's Kerry Craig.
3 top picks in construction, property and packaging
29/05/2018  These three companies with exposure to US housing, domestic property development and packaging are among some of the best investors can buy, according to Greencape's David Pace.
The fund manager practising what it preaches
25/05/2018  Greencape's David Pace explains how high active share underpins this Australian equity manager’s process, along with focusing on aspects such as remuneration both internally and within the companies it holds.
Why UK market decline is good news for some
23/05/2018  UK stocks have fallen from favour as concerns build about Brexit. But James Henderson welcomes the dip as it has provided opportunity for him to pick up income stocks cheap.
Tackling high-fee headwinds
15/05/2018  High fees are a performance headwind that can be difficult for active managers and investors to overcome, says Mike Roach, head of Vanguard Australia's quantitative equity group.
Don't patronise me: Financial advice in plain English
11/05/2018  Former hostage negotiator Richard Mullender highlights the value of plain-speaking, explaining why financial advisers should avoid jargon and tailor their message to individual levels of financial literacy.
What is artificial intelligence?
10/05/2018  What is artificial intelligence? And how can investors profit from the innovation in computer learning?
Morningstar Australian Fund Manager of the Year 2018
09/05/2018  Platinum Asset Management was the overall winner of the Fund Manager of the Year award for 2018, in addition to winning the global equities category.
Why BlackRock is engaging with gun makers
08/05/2018  The world's largest asset manager is stepping up its engagement efforts to increase corporate responsibility, says Morningstar's Jon Hale.
The rise of east and south Asia
04/05/2018  Prospects of North and South Korean peace, India's economic formalisation and increasing Chinese consumer confidence are driving this portfolio manager's interest in Asia.
Is India the next Asian powerhouse?
03/05/2018  Nikko Asset Management's Robert Mann discusses India, providing his views on whether it's economic growth will equal that of China and how investors can access some of the opportunities.
What is a technology stock?
02/05/2018  As technology disrupts a growing number of industries including healthcare, financial services, retail and communication, Emma Wall asks what defines a tech stock.
US-China trade tensions creating opportunities
26/04/2018  While there has been extensive focus on economic and investor risks, Andrew Lill, CIO of Morningstar Investment Management, says his team are looking at opportunities--both in the US-China situation and in tightening Russian sanctions.
Royal Commission: Four pillars policy supports Morningstar view on Big 4
24/04/2018  While investors are right to be concerned, Morningstar's senior banks analyst David Ellis explains why his fair value estimates for Commonwealth Bank, Westpac, ANZ and National Australia Bank are unchanged.
Gold bug tips $1500 price in 2018
19/04/2018  Silver and gold specialist Ned Naylor-Leyland from UK's Old Mutual outlines what will drive precious metals higher, and where ESG fits.
3 top picks in infrastructure
16/04/2018  This trio of sectors spanning UK water, European utilities and US real estate are of substantial interest for Jim Lydotes from BNY Mellon Investment Management.
Infrastructure investing beyond roads, rail, utilities
13/04/2018  This fund manager thinks about the infrastructure sector quite differently than many other professional investors.
Why a weaker US dollar is good for Asian equities
10/04/2018  JP Morgan's Richard Titherington tells Emma Wall why a weak US dollar is good for emerging markets, and why investors should not be put off by a trade war.
Reflections on financial markets in 1Q 2018
05/04/2018  Andrew Lill discusses the return of equity market volatility and other trends of 1Q 2018, looks at how inflation affects equity and fixed income investors, and expectations for interest rate movements.
Where this ESG-focused manager sees opportunity
28/03/2018  Industrial, technology and consumer are favoured sectors over the medium-term for Calvert Research and Management, which also holds strong convictions about firearm manufacturers and related companies.
Environment, sustainability, governance now vital business considerations
27/03/2018  ESG principles are increasingly important to companies in heading off potential risks and differentiating themselves, says Calvert Research & Management's John Streur.
Emerging market rally has longer to run
22/03/2018  Emerging markets may have risen in value significantly over the past two years, but we're only just getting started, says Neptune's Ewan Thompson.
3 emerging market stocks for alternative income
21/03/2018  JP Morgan's Omar Negyal highlights three emerging market equities paying a attractive dividends.
Merlon Australian Share Income Fund
15/03/2018  The Merlon Australian Share Income Fund was recently upgraded to a Bronze medal, from neutral. Morningstar's Matthew Wilkinson explains how it uses options, puts and calls.
Elevators, FMCG among 4 top stocks
14/03/2018  These global companies possess the right attributes for long-term investors, according to BMO Pyrford's CEO and chief investment officer, Tony Cousins.
Aussies tough on corporates but yields enviable
12/03/2018  How this fund manager identifies quality companies in emerging markets, and why it views Australia's investment climate more favourably than other markets.
Morningstar Fund Manager of the Year Award 2018
08/03/2018  Morningstar's Kunal Kotwal explains how we choose our Fund Manager of the Year.
Fundamentals strong for Australian credit
01/03/2018  In this edition of How We Invest Your Money, Western Asset Management's Anthony Kirkham shares his outlook for Australian credit markets.
Opportunities and risks in global credit markets
27/02/2018  In this edition of How We Invest Your Money, John Beck of Franklin Templeton shares his thoughts on the outlook for global credit markets.
FOMO dominant investor sentiment
16/02/2018  Investors are aggressively positioned, with fear-of-missing-out now the overwhelming sentiment , says Morningstar Investment Management's Daniel Needham.
3 top themes in Asian markets
14/02/2018  Diverse themes within financial services and renewables are among the top picks for 2018 from Nikko Asset Management's Eng-Teck Tan.
Accessing world's second-largest stock market
13/02/2018  Given China's ongoing economic growth and increasing representation in global indices, we ask Nikko AM's Eng-Teck Tan what this means for Australian investors.
3 companies tipped for growth
08/02/2018  These very distinct companies across gaming, healthcare and construction are among T. Rowe Price's top Australian equity picks.
Commodities strength augurs well for Aussie shares
06/02/2018  Synchronised global growth and strong commodities form a positive backdrop for Australian equities in 2018, says Randal Jenneke of T. Rowe Price.
Will India live up to Modi's hype?
31/01/2018  The International Monetary Fund has predicted India will drive global growth in 2018, and Prime Minister Modi has made bold promises. What does it mean for investors?
3 macro themes for 2018
31/01/2018  US corporate tax cuts and slow-burning European economic growth feed BlackRock iShares' bullishness on this third market--and equities in general, explains Alex Zaika.
2 top stocks liked by IML
23/01/2018  Investors Mutual senior equities analyst and portfolio manager, Daniel Moore, names some of his team’s favoured healthcare stocks.
Identifying under-appreciated companies an inexact science
18/01/2018  How this fund manager measures the value and quality of its underlying assets--and it isn't all about PE ratios, says Daniel Moore, portfolio manager, Investors Mutual.
Ask The Expert: The what, how and when of multi-asset
18/01/2018  Multi-asset strategies may make more sense than ever amid ongoing volatility, and these are some of the preferred areas for Morningstar Investment Management's senior portfolio manager, Brad Bugg.
3 Sustainable Investing Trends for 2018
11/01/2018  Jon Hale says climate risk, asset manager engagement, and growing advisor interest will be key issues in the coming year.
Fidelity: Inflation is biggest threat to returns in 2018
06/12/2017  Fidelity's UK-based head of equities Sonja Laud explains what has driven positive returns over the past 12 months and looks ahead to where investors can make gains in 2018.
Bogle remains unimpressed with strategic beta
30/10/2017  The Vanguard founder says his long-time strategy of sticking to index funds is still the best bet.
Jack Bogle on what's next for active investing
30/10/2017  The Vanguard founder says net withdrawals have been offset by rising stock prices.
Bogle: Vanguard's size a worry
30/10/2017  Diminishing economies of scale and potential regulatory concerns limits how much bigger Vanguard should become, says founder Jack Bogle.
Bogle: Index funds the best hope for corporate governance
25/10/2017  Corporate governance should be based on long-term factors affecting the corporation, and traditional index funds are the only true, long-term investors, says Vanguard founder Jack Bogle.
Bogle: The good and the bad of ETF trading
25/10/2017  Any significant amount of trading will decrease your return relative to the market, says the Vanguard founder.
Bogle: ETF flows muddle valuation, risk picture
25/10/2017  Large swings in ETF flows make it hard to forecast valuations and are likely introducing new risks into the market, says Vanguard founder Jack Bogle.
Bogle's 'reasonable expectations' for market returns
24/10/2017  The Vanguard founder sees 4 per cent returns for stocks and 3 per cent for bonds over the next decade. 
2 quality stock picks from Anton Tagliaferro
23/10/2017  Investors Mutual's Anton Tagliaferro looks at a couple of quality companies which he believes boast strong competitive advantages.
4 things to consider before selecting a LIC
19/10/2017  Listed Investment Companies are undergoing a resurgence for investors, and Geoff Wilson, CEO, Wilson Asset Management outlines why and what you should look out for.
Investing lessons from Hamish Douglass
10/10/2017  What individual investors can learn from Magellan's approach to stock selection, including considering first- and second-order beneficiaries of disruption and balancing risk against valuation.
Deeper demand driving these pooled investments
31/08/2017  Listed investment trusts are beginning to take off in Australia, but exactly what are they and how do they differ from listed investment companies and managed funds?
Earnings season FY17 mixed bag so far
18/08/2017  Aside from a few high-profile earnings guidance misses, large-cap stocks are doing okay as FY17 reporting season passes halfway, says AMP chief economist Shane Oliver.
Kerr Neilson on why global investment exposure is key
07/08/2017  There are two types of investors, regardless of market noise, imputation credits, diversification approaches and market indices, says the managing director of Platinum Asset Management.
Finding fixed income opportunities in new paradigm
02/08/2017  Slowing economic growth in the US and parts of Europe emphasises the need to carefully select credit opportunities, says Vincent Reinhart, chief economist, Standish Mellon Asset Management.
The home-truths of investing
12/07/2017  Look for companies that sit outside the cycle; heed the lessons of history; and remember the power of compounding, says Bennelong's Neale Goldston-Morris.
Investing to protect on the downside
30/06/2017  There are investment strategies you can adopt to mitigate volatility-linked fear and uncertainty in markets, explains Roy Maslen, chief investment officer – Australian equities, AllianceBernstein.
Don’t overdo benchmark consideration
28/06/2017  Being benchmark agnostic is the most effective approach to fixed income investing, according to Anujeet Sareen, portfolio manager, Brandywine Global.
Factor-based investing using ETFs
26/06/2017  Investors should consider style-exposures--such as value, defensive or yield-- they would like in their portfolios, explains Jonathan Shead, head of portfolio strategists – Asia Pacific, State Street Global Advisors.
Volatility plays to active manager strengths
22/06/2017  The climate of political volatility in the US holds important implications for investors and the funds they invest in, particularly around Donald Trump's ability to pass legislation through Congress, says PIMCO's Libby Cantrill.
3 pockets of opportunity in fixed income
07/06/2017  The head of PIMCO Australia gives his views on active management in fixed income and tells us where he sees most value in this space.
PIMCO Income Fund
07/06/2017  Morningstar's Tim Wong looks at the strengths and competitive advantages of this Silver-rated strategy.
PIMCO Global Credit Fund
07/06/2017  The PIMCO Global Credit strategy receives a Morningstar Analyst Rating of Silver due to its sizeable and highly capable credit research team.
Trump administration biggest macro threat for investors
05/06/2017  Even as European political volatility subsides, the US Government remains a considerable threat to financial markets, says Colleen Barbeau, director of equity portfolio management, Franklin Templeton.
Investors Mutual WS Future Leaders Fund
01/06/2017  Investors Mutual Future Leaders is a capable strategy focused on investing in Australian companies outside the top 50.
Antipodes Global Fund: Class P
01/06/2017  Antipodes constructs this portfolio based on three major objectives--capital preservation, inclusion of attractively priced businesses, and investment resilience.
Why PIMCO Australian Bond is a Gold-rated strategy
10/05/2017  Tim Wong explains why PIMCO Australian Bond is Morningstar's most highly rated fixed-interest strategy in this market.
Schroders stays hot on commodities, cooler on tech and defensives
01/05/2017  Long-term investors in Australian shares will continue to find value, but the time for risk-taking on more speculative plays has passed, says Martin Conlon, Schroders’ head of Australian equities.
No free lunch as fixed-income market shifts
07/04/2017  More difficult market conditions in a rising interest rate environment highlight the value of active management across your portfolio, says Simon Doyle, Schroders' head of fixed income and multi-asset.
The growing appeal of LICs
06/03/2017  The popularity of listed investment companies is on the rise once again, but there are several things investors need to be aware of before buying in, explains Michael Malseed, Morningstar senior analyst, manager research.