TARIFF FEARS SPOOK FUND MANAGERS
Trump’s new measures prompt some investors to turn to emerging market equities
UNITED States President Donald Trump’s announcement of import tariffs, and the prospect of retaliation by other countries, is prompting some fund managers to pare their holdings of US stocks and look for opportunities overseas.
The high turnover of key staff in the White House, including the exit of National Economic Council director Gary Cohn last week, is also undermining confidence in policy making.
Trump said on Thursday that he would begin imposing import tariffs of 25 per cent on steel and 10 per cent on aluminium in 15 days, sparking fears of a global trade war.
Cohn, the chief economic adviser to Trump, who argued against trade protectionism, resigned on Tuesday after the president first announced the tariff plan and his successor has yet to be named.
Fund managers from Oppenheimer, Federated and Wells Fargo and consumers, while prompting its trading partners to impose their own levies on US exporters, increasing their costs and sapping overseas demand.
Daniel Pinto, co-president at JPMorgan Chase & Co, said on Thursday that US equities could fall by between 20 and 40 per cent over the next three years if a global trade war broke out.
Brian Jacobsen, multi-asset strategist at Wells Fargo Asset Management, said that the risks of retaliatory tariffs was prompting him to add to emerging markets and international stocks.
“Strategically, we still really like international and emerging markets, but when you have asymmetric risks, that makes us a little cautious on non-US assets for now, given that markets have not yet priced in the possibility of more protectionist policies,” he said.
Overall, US fund managers have been reducing their stake in domestic stocks as interest rates rise, making bonds more attractive.
US balanced funds, which hold both equities and bonds, now have an average of 55 per cent of their assets in stocks, a four per cent decline from 2014, and nearly 41 per cent of their assets in bonds, according to Lipper data.
Yet Ashwin Alankar, head of global asset allocation at Janus Henderson Investors, said he remained a fan of large-capitalisation US stocks despite the likelihood of higher trade costs and inflation.
The recently-passed US corporate tax cuts provided on-going fiscal stimulus that should balance out higher interest rates, he said, a boost to stock prices that is not found in other markets.
As a result, he was moving more of his portfolio in large-cap US stocks, he said.