Transcript: Trump presidency has been ‘wake-up call’ for Europe

The Trump view of tariffs

MS: I think we need to take the very high view on why this is happening. And the good thing is there has been written a manifesto on the implementation of Trump economics, stipulating how they view the current economic problems of the U.S. and how they’re going to fix it, and that the core of the problem is the structural overvaluation of the U.S. dollar. They want to lower the dollar. And basically what they’re doing now, in the first inning, is that they’re rolling out tariffs. And they don’t discriminate between allies and non-allies. They look at who is ‘taking advantage’ of [the] U.S. as they see it. So, it’s a very complicated system that is going to be rolled out, potentially, and it is going to upend completely existing security and economic structures of the world. It’s the unpredictability of the situation that is the problem. And I think it’s the core tenet of the policy agenda of Trump to infuse uncertainty. And if it continues for a long time it’s going to have significant impact on aggregate growth in the world economy.

On the defence of Europe

MS: There was a vote at the U.N. council, where the U.S. voted together with the Russians and North Korea against a declaration of support for Ukraine, and the security of international borders of Ukraine. And I think we will come back to this day as a day of infamy. This is, I think, the day when we concluded that what the Trump administration is doing is not negotiating tactics. It’s not ‘the art of the deal.’ But it’s a breakage with the historical alliance structures that we’ve had across the Atlantic since 1949. This is a wake-up call in Europe. That creates a lot of investment opportunities. And I can actually tell you that is what is happening right now is that Rheinmetall, an arms procurement company in Europe, is actually actively hiring people from the auto industry, because the auto industry is slowly dying in Europe, but there is ample demand for the labour. And that means that exports that was previously going from auto manufacturers in Germany to the U.S., those capacities — that capital and that labour — will now be redirected into defence in Europe. And I think that is a good thing. It helps Europe in releasing resources that can be deployed in areas of the economic development of Europe that is now going to be prioritized for the future.

Opportunities in the chaos

MS: So, we like companies that are in capital goods areas and where they have, over the historical past, been investing in automation technologies to upgrade the capital goods that they are selling. So, we could talk about companies like Schneider or Atlas Copco, or Siemens in Europe but we have very, very high competent clusters in Europe focused on capital goods going from Finland to Sweden to Germany to France into Italy, where they have for hundreds of years been world leaders in producing machinery for the global manufacturing industry.

And finally, what’s the bottom line on Trump’s impact on Europe

MS: I think that we are entering, longer term, a more inflationary outlook. So, we need to have more focus on real assets and that is, for me, equities. When you talk about equities, you need to think highly about diversification geographically. There are many, many interesting opportunities outside of the U.S. The U.S. being 70% of the world equity markets is unsustainable, if you ask me. And lastly, the reason why I should be really optimistic long-term is that equity returns are generated by earnings growth. So, if you can find areas — pockets of growth — in the world economy where you can, with a high degree of probability, argue that you are going to see earnings growth in the companies that you invest in, you can lean back and hopefully have time help you to generate returns. It’s going to be a volatile period we are going to go through. But at the end of the day, earnings growth drives share prices. So invest in companies, in sectors, where you see the probability of earnings growth being high.

Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Morten Springborg of C WorldWide Asset Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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