Opportunities in trade war
The US and China have entered a trade war after several months of escalating threats. “We are well prepared,” says portfolio manager of SKAGEN Global, Knut Gezelius.
After many months of escalating and reciprocal threats, the US and China have taken what appear to be the first steps in a trade war between two of the world’s largest economies. On Friday, Beijing quickly began levying retaliatory tariffs after the US imposed new tariffs on USD 34 billion of annual imports from China.
The escalation from threats to trade war is expected to have global consequences. Global supply chains will suffer, which will lead to higher costs for businesses and more expensive products for consumers. This will have an impact on stock markets globally.
Although the prospect of a trade war makes the outlook for stock markets unpredictable in the short term, the portfolio managers of the global equity fund SKAGEN Global still believe that equities are an attractive proposition for the long-term investor.
“This trade war has been a long time coming. The signals from both China and the US have been clear, and the only uncertainty was whether Donald Trump would actually carry out his threats. This type of turmoil opens up opportunities for active stock pickers. SKAGEN Global has an unconstrained investment mandate that enables us to seek out and buy stocks in undervalued companies virtually anywhere in the world. The fact that almost everyone fears a war, means that we are able to find quality companies at an even lower price. In the long run this will pay off, even though we may experience some short-term turbulence,” explains Knut Gezelius, portfolio manager of SKAGEN Global.
During the second quarter, SKAGEN Global has adjusted the portfolio and bought into three US companies, amongst others. These are namely Mastercard, Moody’s and Tyson Foods.
“We see the US technology and payment company Mastercard benefitting from the global structural shift from cash to electronic payment, an irresistible force driven by universal factors such as consumer convenience, government tax collection and trade efficiency.
The credit-rating agency Moody’s operates in an oligopolistic market and will benefit hugely over time from emerging markets adopting more bond financing.
Tyson Foods, the premier chicken producer in the US and a former holding in SKAGEN Global, has seen a fall in share price due to short-term noise. However, the secular protein trend and chicken pricing power seem to be intact.
Over the past six months, SKAGEN Global has enhanced its pipeline of portfolio candidates so that the fund can immediately take advantage of attractive entry points that may suddenly emerge going forward,” explains Knut Gezelius.
Foundations for good returns
“It is precisely when stock prices fall and fear reigns that investors are able to make good investments. By buying stocks at lower prices and resisting the urge to sell out, investors lay the foundations for future returns,” comments Pål Bergskaug, Director of Wealth Management in Norway.
“It is during periods such as this that you can lift your long-term returns. Investors who bought stocks during the financial crisis were well paid for it in the aftermath,” concludes Bergskaug.