Any move to fully implement tariffs by US president Donald Trump will have a clear and immediate impact on global markets, Legal & General Investment Management (LGIM) warned, and would likely hit economic growth worldwide.
Up to now the Trump administration has threatened tariffs on goods from the US and Canada while implementing a levy on certain goods from China.
Still, while he has also claimed he will implement tariffs on the EU and increase charges on China from April, his plans have met scepticism from the investment community, who have questioned if they will really be implemented.
While there is much noise from the White House at present, investors need to focus on what is actually put into practice, Sonja Laud, chief investment officer at LGIM told The Irish Times.
“You can translate tariffs into the negative growth impact and potential inflationary pressure on the other side, and this is what the market would get very worried about if there really was now a very clear transparent implementation of those tariffs,” she said. “That would be immediately growth negative.”
While there was “real euphoria” in markets after Mr Trump’s election, “nobody seemed to care about the threats from the immigration approach and tariffs,” she added, although that is clearly changing.
He has “surprised markets significantly”.
Only if policies influence growth, inflation or monetary policy will it have a lasting impact on markets. The rest will be noise, she warned.
Away from the US, European markets have surged in recent weeks despite anaemic growth across the Continent. The pan-European Stoxx 600 index hit an all time high in February and remains close to its high.
Even so, it is “difficult to see” where a “positive growth impulse” for European markets would be coming from, Ms Laud said.
While the European Central Bank is perhaps avoiding being “boxed in” to the idea that it will cut interest rates in a straight line from 2.75 per cent to 2 per cent, the economic data still warrants looser monetary policy, she added.
Given Europe’s reliance on exports to China and the US, the downturn for French luxury firms and German carmakers is of little surprise, although both sectors now trade at “very attractive multiples”, she said.
Overall the European outperformers has been more broad based than a single sector, but more clarity from the new German government led by Friedrich Merz may allow a “revaluation” of European shares, Ms Laud added, citing defence plays such as BAE Systems as an “obvious” move.
