Equity markets sold off overnight as fears of a trade war finally came to a head. The S&P 500 slumped 2.5% to 2643.69, while the Dow Jones Industrial Average tumbled 724.42 points, or 2.9%, to 23,957.89. The Nasdaq Composite dropped 2.5% to 7166.68. All three indices suffered their biggest losses since Feb. 8 of this year.
This market downturn, which particularly pressured shares of manufacturers, aluminum producers and banks, was really the culmination of months of growing investor anxiety over the course of U.S. trade policy. Trade tensions have been exacerbated, as the Trump administration has threatened to impose tariffs on tens of billions of dollars of Chinese imports. Today U.S. administration officials said they were planning to levy tariffs on some US$50-60 billion of Chinese imports. The plan also includes limits on investments by Chinese firms in U.S. companies and technology transfer.
To put that in perspective that’s only 10% of what China exports to the U.S. In fact, it’s not nearly as onerous as first feared. It may be more exemptions will be eventually given just like the proposed steel and aluminum tariffs where Canada, Australia, Mexico, Korea, and now the EU are exempt. It may be these announcements are nothing more than “negotiating tactics”. Time will tell.
That said, a trade war is still a trade war and we don’t know what China’s reaction will be!
All this took place in a market already reeling from the Facebook debacle over stolen personal data earlier in the week.
What to do in light of market volatility
Macrovue’s advice to international equity investors - don’t panic! In the first place, 2018 is going to be a much more volatile year for markets (particularly compared to last year). Volatility also throws out opportunities as does uncertainty.
Secondly, underlying investment fundamentals and a synchronized global economic and earnings recovery are still intact. It is unlikely that the current tariffs will derail this anytime soon: in fact, it will take some time before any effect of tariff impositions will be evident.
Taking a portfolio approach to investing with Macrovue
Macrovue believes that our thematic and concentrated approach is the best way to be positioned in uncertain and volatile markets. Why?
- Thematic investing is long term. We are not concerned with the next headline, earnings release or economic statistic. We are identifying themes that will play over years not months and likely encompass multiple business cycles.
- Our thematic portfolios (Vues) are concentrated, holding only ten shares. To get the best exposure to the theme we only buy what we consider to be the highest quality, best companies that dominate their industries. Having managed overseas share portfolios over many market cycles over the last 30 years, this approach has consistently paid off.
- We are absolute return focus and benchmark unaware. We spend our time analysing individual companies and their future return prospects and are not overly concerned with short-term, news flow driven index movements.
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