As Europe faces the prospect of tariffs on US exports, TS Lombard has advised investors in the region on how to “hedge” their portfolios against tariffs. Before his victory, US President-elect Donald Trump warned that he would impose sweeping tariffs of up to 20% on all imported products. This week he announced that Mexico, Canada and China would be the first countries on the front lines. The European Union is likely to be next, as it runs a €158 billion ($165.6 billion) trade surplus with the United States — one of the president-elect’s biggest troubles. Trump sees tariffs as a way to eliminate what he sees as unfair trade imbalances and boost the U.S. economy and jobs, although critics say domestic consumers will end up paying more for imported goods. In a report this week, Davide Oneglia, director of European and global macro at TS Lombard, suggested that European investors address “tariff risks” by “viewing their exposures the way Donald Trump… Dollar value of US goods deficit/surplus by country and sector. He suggests that investors can “hedge” their portfolios in three key ways: “Periphery” to outperform the “core” Investors should look to the south of Spain, Greece, Portugal (and possibly Italy), Oneglia said “Peripheral” because it will outperform the larger “core” economy. The latter, including Germany and France, as well as Ireland, Austria, Sweden, Denmark and Finland, all have large trade surpluses with the United States. , beverage manufacturers and aerospace companies such as Airbus, as well as the Danish pharmaceutical industry. Peripheral countries, on the other hand, have a more balanced trade relationship with the United States and enjoy other advantages, such as a more services-focused economy, greater sensitivity to lower interest rates, and stronger GDP and earnings growth. Selective approach Second, the economist noted that while it makes sense to generally remain underweight European equities relative to U.S. stocks in the short term, investors appear to be “too dismissive” of opportunities in EU markets. “In absolute terms, once there is more clarity on tariffs, the strong bearish sentiment currently affecting anything in Europe may present some good opportunities for investors willing to discriminate based on company characteristics, international footprint and business model,” he said. Investors are urged to be selective. Defense opportunities No. 3, TS Lombard’s Oneglia noted that Trump has provided a catalyst for increased EU defense spending and public investment, thus recommending investors “hold long defense stocks and remain open to potential upside policy/growth surprises in the EU.” ”. He added: “European Union defense stocks have significantly outperformed not only the Euro Stoxx but also the Nasdaq at times over the past two years, and they may continue to do well.” TS Lombard said Trump may also be willing to Negotiations with EU countries, and possibly even EU businesses, leading to selective tariffs depend on his relationship with national leaders. “We know that for Trump, negotiations often come down to personal relationships with peers, and friendly political leaders are expected to produce better deals. This also has important investment implications,” Onella added.
