The prospect of Donald Trump winning the US presidency has put pressure on the shares of export-sensitive European companies such as automakers and luxury goods groups, with the expectation that he will impose a new tariff package on European exports.
A basket collected by Barclays Bank of shares of 28 European companies exposed to US tariffs has declined by 7% since late last September, according to what the British Financial Times reported.
The basket, which includes Diageo, LVMH and Volkswagen, has fallen by 2% so far this year, compared to an 8% rise for the broader European stock market.
Pressure
According to the newspaper, the declines show how Trump’s promise to launch a trade war if he wins a second term in the White House is increasing pressure on industries, which are already struggling with the decline in the growth of local economies and the slowdown in demand from their main markets in China.
“These sectors face a triple whammy of Trump’s influence, stagnant growth in the European Union, and China’s slowdown,” said Luca Paolini, chief strategist at Pictet Asset Management.
European stock markets lagged behind the significant rise witnessed by US stock indices this year, as the Standard & Poor’s 500 index rose by more than 20%, and many analysts expect that Trump’s tax-cutting agenda will strengthen the US stock market, so any harm will befall European exporters. It threatens to widen the gap further, according to the newspaper.
Trump said he would impose heavy tariffs on imported goods, setting tariffs at 20% for Europe and 60% for China, prompting the International Monetary Fund to warn that his policies would jeopardize global growth.
Possibility of a Republican sweep
The British newspaper quoted Emmanuel Cow, head of European equity strategy at Barclays, as saying that the markets are driven by the expectation that the Republicans will sweep the presidential elections and both houses of Congress (the Senate and the House of Representatives).
“Last month, Trump’s trading took off in full force,” Kao said.
The return of so-called “Trump trades” has also strengthened the dollar in recent weeks, prompting a sell-off in the US Treasury market, with his tariff-driven agenda expected to increase inflation and interest rates.
Trump trades signify a shift in market behavior and investor actions in response to economic policies and political moves associated with a potential Trump presidency.
Several companies in Barclays’ basket generate more than 30% of their revenue in the United States, including truck maker Daimler, chemicals group Arkema and Diageo.
However, some analysts believe that the pessimism surrounding European markets is exaggerated.
Global market strategist at JP Morgan Asset Management, Hugh Gember, said that European markets are trading at a 40% discount compared to American markets, which partly reflects the threat of a renewed trade war, adding, “It appears that this negativity is now well reflected in prices.”
Mark Schartz, portfolio manager at Janus Henderson, expected a broader rise in US stocks after the Republican victory, which would benefit European stocks as well.
“If we get a decisive winner, it will be supportive for the markets,” he added.
