Fast Abstract:
This publish comprises further random musings concerning the present state of affairs, plus an up to date “portfolio test” on the finish. So be happy to leap to the tip in case you are solely within the portfolio test.
Background:
On the finish of 2024, I wrote a first post about what might happen following each a Donald Trump win within the US election and a breakup of the German coalition. My takeaway was that perhaps US shares weren’t the good deal they have been alleged to be.
Since then, two main developments have modified:
- The promised 7–10% US progress has was an nearly sure recession.
- The end result of the German election has been barely higher than initially feared.
All of this has led to a big outperformance of European large-cap shares, particularly in Q1.
Trump / US
I’ve completely no thought the place that is all headed. However one factor is for certain: uncertainty. Particularly concerning the long run course of the US authorities, uncertainty has elevated considerably.
I believe this interpretation by CNN anchor Fareed Zakaria summarizes the “new world” fairly realistically:
📺 https://www.youtube.com/watch?v=3xz7BGAJYhg
A extremely advanced tariff system for the world’s largest economic system—the place exceptions might be granted or revoked by a single individual—will undoubtedly create vital collateral injury, even when a couple of gamers handle to learn.
Whereas it’s exhausting to match straight, Trump II seems simply as chaotic as Trump I. However there may be one key distinction: the folks round Trump now appear much more ideologically pushed than throughout his first presidency. Watching them on TV, it more and more resembles a cult—very similar to the cult round Elon Musk, solely with a lot deeper penalties.
The overarching ideology appears to be that America has been taken benefit of by the whole world, and now it’s payback time—via tariffs, land grabs (Greenland, Panama), or compensation for army assist (Ukraine’s uncommon earths).
They could concentrate on China, however they don’t appear to care if the remainder of the world goes up in flames.
The Position of Traders within the US Commerce Imbalance: Free Money Circulate and Capital Effectivity
From Trump’s standpoint, the narrative is commonly that China, Europe, and even “the Penguins” have stolen manufacturing jobs via unfair practices—primarily by providing cheaper labor.
However one angle is commonly forgotten: investor stress on firms to remain “capital mild” and generate vital free money circulation.
If you discuss to buyers about European shares, one argument at all times comes up: “Look how weak free money circulation is on your European firms, and the way poor their returns on capital are. US firms, then again, are money machines with large buybacks.”
Warren Buffett himself defined this intimately in his 1985 letter to shareholders, when he shut down his textile enterprise. Right here’s the important quote:
“Thus, we confronted a depressing alternative: enormous capital funding would have helped to maintain our textile enterprise alive, however would have left us with horrible returns on ever-growing quantities of capital.“
Buffett—and lots of capital allocators after him—acknowledged a tough reality: mass manufacturing is capital-intensive, cyclical, and aggressive. And that mixture simply doesn’t produce nice shareholder returns in the long term.
It’s far simpler to create free money circulation from providers (GEICO), sugarwater & caffeine (Coca-Cola), or branded sweet (See’s Candies).
In my view, the relentless US concentrate on capital effectivity and the outsourcing of capital-intensive, aggressive manufacturing is a key driver behind the unparalleled efficiency of US shares over the past 40 years. The quicker you ditched manufacturing, the quicker you bought wealthy—or super-duper wealthy—as an investor, PE man, or company CEO.
Sure, a couple of nice US manufacturing firms stay, however most are area of interest gamers with high-margin merchandise.
In distinction, in most main exporting nations—Japan, South Korea, Germany, and even China—returns on capital are considerably decrease. Why? For Germany at the least, a part of the reply is perhaps that many firms have been family-owned, with homeowners much less wanting to get wealthy quick and extra content material with getting wealthy slowly—or simply staying wealthy.
It’s no coincidence that Apple or Nvidia—who don’t really manufacture themselves—have far greater returns on capital and free money circulation than Samsung or TSMC, who nonetheless do a whole lot of their very own manufacturing.
This is among the essential the explanation why US markets have massively outperformed everybody else for many years.
The Massive Query
Who will present the capital—and settle for the low and unstable returns—to carry manufacturing again to the US?
Possibly some Chinese language firms can be prepared to construct factories within the US for low returns, however the People doubtless received’t enable it.
European companies may not have the capital—particularly if a recession is triggered by US tariffs. The identical may go for non-Chinese language Asian firms.
Even absolutely automated factories are capital-intensive and much much less environment friendly than outsourcing to a accomplice who’s glad with a decrease return on capital.
This is only one flaw within the “tariffs will carry again jobs” technique—however I haven’t seen a lot dialogue round it.
Germany / Europe
All in all, the end result of the German election—at the least from an financial perspective—could also be fairly near a “best-case” situation, no matter meaning.
A CDU/CSU and SPD coalition is more likely to ship a extra pro-business, pro-growth agenda than a authorities that features the Greens or extra radical events.
The unhealthy information is that about 35% of voters nonetheless supported radical events (AfD, Die Linke, BSW).
They now have 4 years to point out whether or not they can stabilize Germany and Europe. If not, there’s a excessive likelihood these events will enter authorities subsequent time.
What they’ve completed up to now seems… okay. Not nice, however okay.
On the EU stage, the response has up to now been measured and cheap. Nonetheless, the Trump administration clearly harbors deep resentment towards Europe. Assuming a “no tariffs” consequence can be naive.
I see actual potential for escalation—perhaps not fairly as unhealthy as with China, however Trump’s affection for Putin ought to make Europe cautious of anticipating truthful therapy. What we will simply see from the Japanese and UK “negotiations”, an this Buffett quote involves my thoughts: “It’s inconceivable to make cope with unhealthy folks”.
Up to now in 2025, European—and significantly German—shares have considerably “decoupled” from the US. However I don’t consider this will probably be sustainable.
“There Will Be Blood”
It doesn’t matter what occurs within the subsequent weeks or months, in my opinion, a whole lot of injury has already been completed.
The tariffs proposed by Trump are so excessive that no severe businessperson can confidently allocate capital with out realizing the place issues are headed. And because it stands, there received’t be readability anytime quickly.
Should you put money into the US, who’s to say these tariffs received’t disappear in 3 months? You would possibly as soon as once more end up competing with low cost imports.
The one query is: who will get hit hardest?
Proper now, it appears massive firms with sturdy lobbying (Apple) and highly effective curiosity teams (US farmers) is perhaps spared or compensated.
However many smaller companies—each within the US and overseas—will undergo.
In fact, there will probably be winners, too. Smuggling—or “optimizing provide chains”—may grow to be vastly worthwhile once more. Subtle logistics companies that may reroute and repackage items will do effectively.
Native gamers who profit from decreased international competitors will even revenue. Something that guarantees “independence from China” will doubtless do effectively within the quick time period.
However once more—this may very well be short-lived.
Consensus Trades & Structural Winners
The present consensus trades are:
- Gold (inflation hedge)
- European protection
- Uncommon earth mining
We’ll doubtless see extra of those “winners” rising—however to learn, you’ll want to remain nimble and act quick when the tide turns.
Some sectors may benefit structurally, as an example:
- Infrastructure with inflation-linked pricing energy (changing it will be pricey)
- Round economic system gamers—recycling important uncooked supplies may grow to be a key benefit if commerce wars intensify.
“Protection First” – Up to date Portfolio Test
I’ve saved the outdated replace from final 12 months and made adjustments the place wanted, together with new positions
| STEF | No direct publicity, each to US and German coverage adjustments in my view. New: decrease oil/vitality costs and rates of interest constructive, no direct influence of tariffs |
| TFF | Barely adverse publicity to European wine exports to the US, barely constructive publicity to decrease taxes for the (rising) US operation. General impartial.TFF is perhaps essentially the most sophisticated case. US Bourbon exports will probably be clearly negatively impacted, in addition to European Wine exports to the US. Nevertheless, native consumption of US Bourbon within the US would possibly enhance (much less competitors) and the connection between Europe and China would possibly enhance. General, nonetheless adverse influence, additionally extra friction than previously for TFFs essential prospects on prime of behavioural adjustments (much less alcohol consumption total). |
| DCC | No exports.Probably some adverse influence on “clear vitality” initiatives, then again 20% of OP realized within the US, conventional vitality enterprise may need an extended runway. Barely constructive. Whereas I’ve been scripting this. DCC introduced to concentrate on vitality, to which the share value reacted positively.The enterprise as such will almost certainly however not affected. Nevertheless, the present divestment plan of the non-Power actions will probably be clearly hit by decrease comparables and decreased deal exercise. So in the meanwhile, adverse influence.l |
| SFS | SFS largely produces domestically. Nevertheless, by way of the acquired Hoffmann Group they’ve publicity to most of Europe’s exporters from the machining business. On the flipside, Chinese language rivals to SFS’s prospects would possibly undergo much more. Nonetheless, total barely adverse, at the least within the quick to mid time period.Not a lot change right here, with the one exception that SFS in my view has first rate publicity to the European steel working business, which could profit from elevated protection spending. I’m stunned how a lot the share value went down. |
| ATD | ATD has a whole lot of enterprise within the US, so decrease taxes must be good. Larger rates of interest for the Japanese Acquisition (if it goes via) can be adverse. General barely constructive.A US recession would clearly be not nice, however nonetheless it is a very resilient enterprise in my view. |
| Italmobiliare | No related publicity aside from some US primarily based PE funds. General impartial.No large adjustments right here i assume. |
| Eurokai | A really attention-grabbing query. If world buying and selling quantity would decline considerably, Eurokai can be negatively affected though direct publicity to US strains is comparatively low to my data. General, barely adverse.Once more a really attention-grabbing case. It may even be that they see extra site visitors from the Asian facet. |
| G. Perrier | No exports to US to my data, total impartial or barely constructive (Nuclear, protection)No change. The share value hasn’t benefitted in any respect from the protection publicity. |
| Fuchs | Native manufacturing, no exports. Nevertheless, publicity to European Vehicle business, barely adverse.No large change. However clearly some publicity to a quickly slowing economic system. |
| EVS Broadcast | The US was one of many goal markets to increase. For the {hardware} half, Tariffs is perhaps a (small) subject, however I suppose all rivals import their gear. EVS would possibly even have a bonus as they assemble in Europe and don’t import straight from China. Impartial to barely constructive.No change right here, nevertheless, a recession within the US may after all negatively influence progress., |
| Royal Unibrew | No US publicity in any respect to my data.Impartial.No change |
| Thermador | Solely native French enterprise, impartialNo change |
| SIxt (Vz&St) | Sixt has been rising aggressively within the US. It is going to be tougher for Sixt to get (German) premium vehicles sooner or later for the US market. General, I see barely constructive impacts on Sixt. Throughout writing the publish, Sixt launched Q3 outcomes and guided to the decrease finish of the vary for 2024. Possibly I’m incorrect, however I nonetheless see the extra upside than draw back.A transparent adverse in my view are the quickly dropping numbers of inbound vacationers into the US. Sixt’s enterprise within the US is leveraged to tourism and it wil be attention-grabbing to see if home tourism can fill the hole. Elevated tariffs for automobile imports would possibly hit the weaker rivals a lot tougher. A constructive is clearly that residual values of used vehicles will go up considerably, which was an issue for Sixt previously. General, the inventory has already reacted fairly negatively. |
| Bouvet | No direct US publicity. The Norwegian economic system remains to be geared in direction of oil & fuel costs. Impartial.Decrease oil costs are normally not constructive for the Norwegian economic system. In any other case impartial. |
| SAMSE | Publicity to the French development and renovation sector. Indirectly impacted.No change right here. |
| Hermle | Hermle is a tougher case. On the one hand, they’ll clearly undergo if the European equipment sector suffers. Alternatively, when the US needs to extend its manufacturing capability, this might imply alternative, particularly for Hermle as they want extra machines to supply excessive precision elements and automation. Sure, there can be tariffs, however the Chinese language competitors is perhaps harm way more. That is clearly a inventory to look at intently on which facet issues will go.Little change right here, nevertheless vital publicity to potential US/Europe escalation. |
| Chapters Group | No direct publicity. Impartial.No change |
| Laurent Perrier | The US is the biggest importer of Champagne (15% of complete manufacturing), so there’ll clearly be an influence. The massive query is: How massive will the influence be and what’s already mirrored within the present share value ?No change. |
| Robertet | Robertet has vital US publicity and is importing a big a part of their pure elements. Alternatively, their elements are usually not simply replaceable. The principle query will probably be about pricing energy in my view. |
| Bombardier | Bombardier is an attention-grabbing case. On the time of writing, Bombardier is among the few firms outdoors the US, which isn’t topic to further tariffs. So in idea they’re even better off in comparison with their main competitor Gulfstream. Nevertheless, it will clearly not keep that manner. In any case, the main danger for Bombardier can be if Trump will get indignant at Canada once more or if demand from the tremendous wealthy would really drop. |