10.03.2025 – Tariff Tiffs and Economic Shifts

Tariff Tiffs and Economic Shifts

Brash and inflammatory speeches from Tariff Man have meant that China has spent a period of time under the radar and out of the headlines. Despite this, the investment opportunity in China appears to be evolving even if the world’s second largest economy is slowing down.

The key talking point here is sentiment. Fundamentally, nothing has materially changed yet, if anything conditions have deteriorated as some forecasters now believe GDP growth may fall below 3%. But if there’s any country that has a record of finding a way of making things click again it’s the Chinese. As you’d expect, “they’ll make it work” isn’t a strong investment thesis but the words and actions of Xi Jinping and those around him are starting to look more supportive of the economy.

China Utopia

Xi Jinping has been meeting with the country’s most important business leaders. Most notable is that Jack Ma, founder of Alibaba, has been prominent in Chinese state media’s reporting. A monumental change given he went ‘missing’ in 2020 following a speech in which he publicly criticised the financial sector. The Chinese securities regulator is also rumoured to be exploring targeted deregulation to make China a more appealing nation in which to invest, as well as improving the appeal of listing in China. Only last month CATL, the world largest electric vehicle battery manufacturer has filed to list in Hong Kong in what would be the region’s largest stock offering in 4 years.

The rather unimaginatively named “Two Sessions” (week-long annual formal government meetings), are taking place in China this week. The topics for discussion are unknown but it’s very interesting that the “Made In China 2025” project along with the government’s rolling 5 year economic plan both come to their conclusion this year. We have no crystal ball, but supportive policy is very much on the table. For this reason, we have taken our allocation to China from a marginal underweight, to an overweight.

Of course, we need to acknowledge that China isn’t without its own issues. Political risk has long caused headaches for investors in China, with the government being so dynamic and arguably inexperienced, that at times it can be unpredictable.

Stormy White House

Unpredictability, recklessness and confusion is high in US politics – one of the best pieces of evidence I can provide you with is a quote by Trump in a recent speech – “Who the hell made these deals [with Canada and Mexico], they’re so bad!”. The last trade deal between the three nations was made in 2018, I’ll leave you to recall who the president was. We have seen a shadow cast over just about anything where there is US influence, whether that be relating to economies, security, immigration, … the list is very long. What’s upset markets the most relates to tariffs. Tariffs are a tax paid by the importer, despite Trump’s persistence that they’ll make other nations pay. Therefore, the tariffs imposed upon Canada and Mexico will increase costs upon US businesses, likely be passed on to the consumer and so ultimately, it’s the everyday person that pays for nonsensical decision making from the very top of government. We believe that Trump is throwing his weight around to get businesses to move their manufacturing to the US, but this is not something that any business can do overnight.

The BAM portfolios have been underweight since before the US election, primarily as we felt valuations were quite punchy. In addition to this, we decided to further reduce our US allocation in February due to the increasing political risk and to fund the above mentioned China purchase where we feel there is a stronger case for improving economic conditions. Despite this, it is important to remain cognisant that just as quickly as we can receive bad news, it’s very possible that Trump may announce a reversal to any of his policies which could spark a market rally.

RISK DISCLOSURE: AS IS THE VERY NATURE OF INVESTING, THERE ARE INHERENT RISKS AND THE VALUE OF YOUR INVESTMENT WILL BOTH RISE AND FALL OVER TIME. PLEASE DO NOT ASSUME THAT PAST PERFORMANCE WILL REPEAT ITSELF AND YOU MUST BE COMFORTABLE IN THE KNOWLEDGE THAT YOU MAY RECEIVE LESS THAN YOU ORIGINALLY INVESTED. CHANGES IN RATES OF EXCHANGE MAY HAVE AN ADVERSE EFFECT ON THE VALUE, PRICE OR INCOME OF AN INVESTMENT. THE OPINIONS STATED ARE THOSE OF BECKETT ASSET MANAGEMENT LTD, WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

 

24.02.2025 – Back To The Deutsche Discotheque

Back to the Deutsche Discotheque

To put it mildly, there’s not been too many positive things to say about Europe recently as war, inflation and political upheaval have weighed on investor sentiment. To quote a US hedge fund manager by the name Dan Loeb, “Markets are like a bad party. When things get too euphoric, it’s time to go home. When everyone is throwing up in the bushes, it’s time to come back.” In September last year we rejoined the party, moving to an overweight Europe allocation in the Overseas Equity fund and just this week, taking a new position in the Fixed Income fund via a European Government Bond ETF.

Spain, Greece and Malta continue to cut shapes on the dancefloor, all posting reasonable GDP growth figures in 2024 but Germany and France, the two largest economies in Europe, still have their heads firmly in the bushes. So, what do we see that makes Europe interesting now?

Sometimes bad news is good news, and good news is bad news.

Eurozone GDP growth has been non-existent for some time, Italy and Germany’s industrial output has been falling and the French are still arguing amongst themselves as to who’s even in charge. Clearly each constituent nation of Europe has their problems. Europe’s silver lining is that they are one of the first developed regions that can say with a degree of confidence that they have inflation largely under control now. What this means is that the European Central Bank has a greater opportunity to cut interest rates than other regions and should we see further ‘bad’ economic news, so long as inflation remains under control, this would be a positive for asset prices as it would further fuel the expectation for interest rate cuts to support growth. For fixed income assets, falling interest rates means falling bond yields, which in turn causes capital values to rise. As a direct consequence of these views, we’ve recently taken a position in a European Government Bond ETF with substantial duration, meaning that the ETF will have a high degree of sensitivity to changes in interest rates. Falling interest rates are also a positive for equities as it means the cost of borrowing falls and lower discount rates are used for valuing future cash flows – a benefit to many alternative and property assets too.

The potential positives for a European revival are if anything more relevant for the ethical portfolios than the core models as they have an inherent bias towards the region, due to the level of ESG related development and attitudes. You may have noticed since the turn of the year, the performance of the two ethical portfolios has significantly improved – European allocations have certainly played a part in this and we are optimistic that this trend will continue.

With a little supportive fiscal antidote, we may well see Germany and France dragging the rest of Europe back up on that dancefloor once again and the BAM portfolios are positioned to benefit from such a scenario.

Merkel

RISK DISCLOSURE: AS IS THE VERY NATURE OF INVESTING, THERE ARE INHERENT RISKS AND THE VALUE OF YOUR INVESTMENT WILL BOTH RISE AND FALL OVER TIME. PLEASE DO NOT ASSUME THAT PAST PERFORMANCE WILL REPEAT ITSELF AND YOU MUST BE COMFORTABLE IN THE KNOWLEDGE THAT YOU MAY RECEIVE LESS THAN YOU ORIGINALLY INVESTED. CHANGES IN RATES OF EXCHANGE MAY HAVE AN ADVERSE EFFECT ON THE VALUE, PRICE OR INCOME OF AN INVESTMENT. THE OPINIONS STATED ARE THOSE OF BECKETT ASSET MANAGEMENT LTD, WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

 

10.02.2025 – Donald Trump’s In Office, Your Exports Are Tariffied

Donald Trump has returned to office and has already put pen to paper on over 20 executive orders, more than any previous president signed on their inauguration day. From the protectionist policies we expected to see such as “Protecting The American People Against Invasion” to the slightly bizarre “Putting People Over Fish”. Trump is making his mark but so far, the imposition of widespread tariffs seems to have been avoided – it seems someone has tapped him on the shoulder and reminded him that he can’t have lower inflation and widespread tariffs.

25% tariffs were briefly imposed upon Colombia’s imports and 10% tariffs on Chinese goods are likely to be longer lasting but elsewhere Trump is throwing America’s economic weight around to get his way. We have already seen this with Canada and Mexico where the threat of tariffs very swiftly brought government officials to the negotiating table, leading to the imposition of the tariffs being delayed. I suspect that this may initially be how tariffs are utilised and that at times Trump’s bark may well be more intimidating than his bite. However, as with what we’ve already seen, it’s not to say he won’t use them to get his way.

US Tariffs

It’s clear Trump sees China as the nation’s main international trade competitor. Elon Musk becoming his new best friend and a plethora of tech CEOs lining the front row of his inauguration appears to be a clear sign that he believes technology companies have a key part to play in future growth, a view reinforced by the subsequent signing of an executive order titled “Removing Barriers To American Leadership In Artificial Intelligence”. Unfortunately for him, as at the time of writing, at the top of the Apple App Store charts is a Chinese AI app called DeepSeek which has caused Nvidia to DeepSink, falling in value by $589bn, the largest ever single day fall. The reason not necessarily being that the technology is superior in performance, all AI software remains far from polished, but the reported massive difference in development cost, power requirements and number of chips needed to function, brings into question the future level of demand for Nvidia chips.

Chip Fighting

Accusations of intellectual property theft are now flying around and I doubt this will be the last we hear on the matter. Any competition is positive and the real winner will be the end user. All BAM portfolios have exposure to a number of companies involved in AI, but this is likely to be less than our peers due to the big players in the sector being US tech giants that we feel are currently overpriced. As for Donald and the wider US, we remain underweight, primarily on valuation grounds but we must also consider the unwanted potential for political surprises.

RISK DISCLOSURE: AS IS THE VERY NATURE OF INVESTING, THERE ARE INHERENT RISKS AND THE VALUE OF YOUR INVESTMENT WILL BOTH RISE AND FALL OVER TIME. PLEASE DO NOT ASSUME THAT PAST PERFORMANCE WILL REPEAT ITSELF AND YOU MUST BE COMFORTABLE IN THE KNOWLEDGE THAT YOU MAY RECEIVE LESS THAN YOU ORIGINALLY INVESTED. CHANGES IN RATES OF EXCHANGE MAY HAVE AN ADVERSE EFFECT ON THE VALUE, PRICE OR INCOME OF AN INVESTMENT. THE OPINIONS STATED ARE THOSE OF BECKETT ASSET MANAGEMENT LTD, WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

 

23.01.2025 – Who Drank All The Guinness?

Introduction

Gone are the days of ultra formal, unrelatable marketing distributions and so we at BAM have taken the decision to give our newsletter a refresh. The BAMalyst newsletter will seek to provide clients with the investment team’s latest thoughts in a light-hearted and easy to digest, conversational tone. Most importantly, you will receive the newsletter on a fortnightly basis and so you’ll never be more than two weeks away from our reaction to the latest major events if there are any, or more trivial yet relevant thinking such as in this edition.

Who drank all the Guinness?

Our world has a finite amount of a number of commodities – fossil fuels might come to mind, but we now face a new crisis in the form of a shortage of Guinness. The stout drought is due to the drink becoming more popular with Generation Z (people currently aged between 12 and 27, although I hope the Guinness consumed by age is skewed to the upper end of that range).

Diageo, the brewer of Guinness declared the shortage on the 4th of December and in the following week the share price rose by nearly 10%. Why?

Supply-demand imbalances can create powerful investment opportunities. In this instance Diageo could either charge a higher price, improving profit margins whilst potentially stifling demand or brew greater quantities, increasing supply to meet the increasing demand. Fear not, they’ve chosen the latter.

In the majority of developed countries, populations are ageing. This only elevates demand for healthcare services at a time when you could argue demand already dwarfs supply, *insert disappointing NHS statistic*. This presents a clear opportunity for businesses offering some form of healthcare solution. Another consequence of an ageing population is a shrinking workforce, which arguably increases the requirement for technological developments to compensate. No politician will ever say it, but it’s very difficult to accommodate an ageing population without either significant immigration or computers ‘taking’ jobs.

Whilst the core BAM portfolios have exposure to Diageo, due to it being one of the largest companies in the UK, there are greater and arguably more important supply-demand imbalances where we can invest.

Whilst I may be more immediately concerned about my local being unable to stock my preferred beverage, we as a collective, face longer term challenges, where investment into companies offering goods and services in expanding sectors are likely to benefit.

On a different note, we wanted to acknowledge that bond yields, representative of the cost of borrowing, are rising again, particularly in the UK. This appears to be primarily due to political missteps and the outlook not being one of high growth. Another contributing factor may simply be Mr Market being fed too much government debt and suffering with ‘issuance indigestion’. There is the potential that this could lead to faster interest rate cuts than is currently anticipated but given the development is in its infancy, it’s much too early to take a high conviction view. At present this isn’t a major concern but something the team are keeping a keen eye on and potentially a future BAMalyst topic should there be further notable developments.

RISK DISCLOSURE: AS IS THE VERY NATURE OF INVESTING, THERE ARE INHERENT RISKS AND THE VALUE OF YOUR INVESTMENT WILL BOTH RISE AND FALL OVER TIME. PLEASE DO NOT ASSUME THAT PAST PERFORMANCE WILL REPEAT ITSELF AND YOU MUST BE COMFORTABLE IN THE KNOWLEDGE THAT YOU MAY RECEIVE LESS THAN YOU ORIGINALLY INVESTED. CHANGES IN RATES OF EXCHANGE MAY HAVE AN ADVERSE EFFECT ON THE VALUE, PRICE OR INCOME OF AN INVESTMENT. THE OPINIONS STATED ARE THOSE OF BECKETT ASSET MANAGEMENT LTD, WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.