Portfolio manager’s commentary


June 5, 2019



As a warmonger would, Donald Trump has opened hostilities, simultaneously leading a trade war (imported goods) and a technological war (intellectual property, patent law). His enemies are clearly identified: China, Mexico, Europe too imminently, and more generally any country likely to trade to the United States’ disadvantage. His “America First” slogan reflects his attitude and is the US president’s watchword.
His favourite weapons are taxes on foreign imports, also known as tariffs. These apply to agricultural produce as much as they do to aluminium or goods manufactured in Asia.

These trade wars are directly impacting world growth by hampering trade between the world’s leading economies. The IMF has consequently reduced the worldwide growth figure for 2019 to 3.3%, compared with 4% two years earlier. In addition, interest rates are suffering from these battles, and declining sharply. American 10-year rates stand at 2.2% (versus 2.68% at 31 December 2018) and the Bund (Germany’s 10-year rate) is negative, at -0.2%. The search for security or yield is suffering from this situation.
Under the circumstances, we have increased the proportion of cash in portfolios following the sale of stocks such as Amazon, a share with a remarkable market record (up 18% in 2019). Large caps are present in portfolios to the detriment of smaller caps which are more fragile and linked to global growth and where liquidity may prove lacking during stock market corrections. The bond portfolio remains underweight and alternative management is absent from portfolios.
We are paying close attention to changes in oil prices, which have fallen ($56 a barrel on WTI) following lower forecasts for global growth, bringing about less sustained demand for “black gold”. We want to take advantage of this correction and increase our exposure to oil in the near future. As regards emerging equities, we will take new positions in this area if trade tensions with the United States ease, thereby providing better visibility.
These “wars” conducted by the US president cannot last forever, as they are adversely affecting the deficit, which is already abysmal and cannot be allowed to worsen indefinitely. Trump wants to be re-elected at the next US presidential elections in November 2020. In addition, his campaign has begun, and he must do his utmost to obtain Wall Street’s support. He must therefore strike a pro-financial markets policy while supporting growth.

Growth is still supported by central Banks, which are following accommodative policies. The Fed is willing to decrease rates further in the event of an economic slowdown. The European Central Bank, meanwhile, is considering mechanisms to help banks where investing cash at negative interest is affecting their earnings. The G20 is due to be held in Japan on 28 and 29 June 2019. The American president will meet his Chinese counterpart, and the subject of trade is unavoidable.

Summer trading on financial markets will depend on Trump’s tweets, so a rollercoaster ride is guaranteed. Autumn should bring more stability and rationality, with company results in particular, and a softening in the presidential tone to keep investors, Trump’s long-standing campaign allies, sweet.

Finalised on 5 June 2019 at 12:00

Aymeric DIDAY
Head of Management