If you listen to the talking heads, the big news at the G-20 summit is President Trump’s meeting with Vladimir Putin. Although this meeting is important, the media, in our opinion, is missing the real story. That story is what will happen between Chancellor Merkel of Germany and President Trump. Merkel wants to talk about climate change, free trade and immigration. These are not the key points Trump wants to discuss. Trump is interested in one thing – increasing business for America. Many times meetings such as these are just for show as the participants sign documents that were negotiated and finalized months before the actual meeting. We anticipate this meeting to be different and could be more explosive than the actual NATO meeting.
Trump sees the world as one where countries engage and compete with one another for goods and services, while many in the G-20 see the world as a global community. To this end, on June 27th, US Commerce Secretary, Wilbur Ross, spoke to the German Economic Council and demanded that Germany start buying raw materials from the US instead of Russia, that it lower tariffs on automobile imports and that it ensure America “obtains a larger share” of European markets. Couple this with the US recently backing out of several G-20 agreements on globalization and you can see where the beginning of sanctions and countersanctions may have already started to develop between America and Germany.
What does this mean for your portfolio?
While we know any investment we make on our clients’ behalf includes some risk, we want to find those opportunities we believe have the greatest upside potential with the least amount of downside risk. Any investment on the high side of historical valuation metrics is going to be hypersensitive to negative outcomes such as the implementation of tariffs and sanctions. Because emerging markets and energy equities are selling at such compelling historical valuation levels, sanctions should have less of an impact on these sectors because the assets are already “cheap”. Non-correlated assets also offer a wonderful opportunity because their returns are minimally impacted by global trade.