Fast Abstract:
This publish incorporates extra random musings in regards to the present scenario, plus an up to date “portfolio examine” on the finish. So be happy to leap to the tip if you’re solely within the portfolio examine.
Background:
On the finish of 2024, I wrote a primary publish about what may occur following each a Donald Trump win within the US election and a breakup of the German coalition. My takeaway was that possibly US shares weren’t the nice deal they had been presupposed to be.
Since then, two main developments have modified:
- The promised 7–10% US progress has changed into an nearly sure recession.
- The 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 concept the place that is all headed. However one factor is for certain: uncertainty. Particularly concerning the longer term 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 complicated tariff system for the world’s largest financial system—the place exceptions will be granted or revoked by a single individual—will undoubtedly create important collateral harm, even when just a few gamers handle to profit.
Whereas it’s exhausting to check immediately, Trump II seems to be simply as chaotic as Trump I. However there may be one key distinction: the folks round Trump now appear way 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 complete world, and now it’s payback time—via tariffs, land grabs (Greenland, Panama), or compensation for navy help (Ukraine’s uncommon earths).
They could deal with China, however they don’t appear to care if the remainder of the world goes up in flames.
The Function of Buyers within the US Commerce Imbalance: Free Money Move and Capital Effectivity
From Trump’s viewpoint, 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 corporations to remain “capital gentle” and generate important free money movement.
While you discuss to traders about European shares, one argument at all times comes up: “Look how weak free money movement is to your European corporations, and the way poor their returns on capital are. US corporations, however, 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: big 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 movement from companies (GEICO), sugarwater & caffeine (Coca-Cola), or branded sweet (See’s Candies).
For my part, the relentless US deal with 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, just a few nice US manufacturing corporations 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 not less than, a part of the reply is likely to be that many corporations had been family-owned, with homeowners much less desperate 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 larger returns on capital and free money movement than Samsung or TSMC, who nonetheless do a variety of their very own manufacturing.
This is without doubt one of the most important 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 deliver manufacturing again to the US?
Possibly some Chinese language corporations can be keen to construct factories within the US for low returns, however the People doubtless gained’t enable it.
European corporations may not have the capital—particularly if a recession is triggered by US tariffs. The identical may go for non-Chinese language Asian corporations.
Even totally automated factories are capital-intensive and much much less environment friendly than outsourcing to a accomplice who’s happy with a decrease return on capital.
This is only one flaw within the “tariffs will deliver again jobs” technique—however I haven’t seen a lot dialogue round it.
Germany / Europe
All in all, the result of the German election—not less than from an financial perspective—could also be fairly near a “best-case” state of affairs, no matter which means.
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 dangerous information is that about 35% of voters nonetheless supported radical events (AfD, Die Linke, BSW).
They now have 4 years to indicate 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 to this point seems to be… okay. Not nice, however okay.
On the EU stage, the response has to this point been measured and affordable. Nonetheless, the Trump administration clearly harbors deep resentment towards Europe. Assuming a “no tariffs” consequence can be naive.
I see actual potential for escalation—possibly not fairly as dangerous 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 a very good take care of dangerous folks”.
Up to now in 2025, European—and notably German—shares have considerably “decoupled” from the US. However I don’t imagine this might be sustainable.
“There Will Be Blood”
It doesn’t matter what occurs within the subsequent weeks or months, for my part, a variety of harm has already been completed.
The tariffs proposed by Trump are so excessive that no severe businessperson can confidently allocate capital with out understanding the place issues are headed. And because it stands, there gained’t be readability anytime quickly.
Should you spend money on the US, who’s to say these tariffs gained’t disappear in 3 months? You may 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 giant corporations with robust lobbying (Apple) and highly effective curiosity teams (US farmers) is likely to be spared or compensated.
However many smaller companies—each within the US and overseas—will endure.
After all, there might be winners, too. Smuggling—or “optimizing provide chains”—may grow to be vastly worthwhile once more. Refined logistics corporations that may reroute and repackage items will do properly.
Native gamers who profit from decreased international competitors may even revenue. Something that guarantees “independence from China” will doubtless do properly within the brief time period.
However once more—this might 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 profit, you’ll want to remain nimble and act quick when the tide turns.
Some sectors may benefit structurally, for example:
- Infrastructure with inflation-linked pricing energy (changing it might be pricey)
- Round financial system gamers—recycling important uncooked supplies may grow to be a key benefit if commerce wars intensify.
“Protection First” – Up to date Portfolio Examine
I’ve saved the outdated replace from final yr 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 affect of tariffs |
| TFF | Barely destructive publicity to European wine exports to the US, barely constructive publicity to decrease taxes for the (rising) US operation. General impartial.TFF is possibly essentially the most difficult case. US Bourbon exports might be clearly negatively impacted, in addition to European Wine exports to the US. Nevertheless, native consumption of US Bourbon within the US may enhance (much less competitors) and the connection between Europe and China may enhance. General, nonetheless destructive affect, additionally extra friction than prior to now for TFFs most important clients on high of behavioural adjustments (much less alcohol consumption general). |
| DCC | No exports.Doubtlessly some destructive affect on “clear vitality” initiatives, however 20% of OP realized within the US, conventional vitality enterprise might need an extended runway. Barely constructive. Whereas I’ve been scripting this. DCC introduced to deal with vitality, to which the share worth reacted positively.The enterprise as such will most definitely however not affected. Nevertheless, the present divestment plan of the non-Vitality actions might be clearly hit by decrease comparables and decreased deal exercise. So in the meanwhile, destructive affect.l |
| SFS | SFS principally produces regionally. 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 clients may endure much more. Nonetheless, general barely destructive, not less than within the brief 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 worth went down. |
| ATD | ATD has a variety of enterprise within the US, so decrease taxes ought to be good. Larger rates of interest for the Japanese Acquisition (if it goes via) can be destructive. 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 based mostly PE funds. General impartial.No huge adjustments right here i assume. |
| Eurokai | A really fascinating query. If international 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 destructive.Once more a really fascinating case. It may even be that they see extra site visitors from the Asian aspect. |
| G. Perrier | No exports to US to my data, general impartial or barely constructive (Nuclear, protection)No change. The share worth hasn’t benefitted in any respect from the protection publicity. |
| Fuchs | Native manufacturing, no exports. Nevertheless, publicity to European Car business, barely destructive.No huge change. However clearly some publicity to a quickly slowing financial system. |
| EVS Broadcast | The US was one of many goal markets to broaden. For the {hardware} half, Tariffs is likely to be a (small) challenge, however I suppose all rivals import their gear. EVS may even have a bonus as they assemble in Europe and don’t import immediately from China. Impartial to barely constructive.No change right here, nevertheless, a recession within the US may after all negatively affect 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 will likely be tougher for Sixt to get (German) premium automobiles 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 mistaken, however I nonetheless see the extra upside than draw back.A transparent destructive 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 fascinating to see if home tourism can fill the hole. Elevated tariffs for automotive imports may hit the weaker rivals a lot tougher. A constructive is clearly that residual values of used automobiles will go up considerably, which was an issue for Sixt prior to now. General, the inventory has already reacted fairly negatively. |
| Bouvet | No direct US publicity. The Norwegian financial system continues to be geared in the direction of oil & fuel costs. Impartial.Decrease oil costs are usually not constructive for the Norwegian financial 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 are going to clearly endure if the European equipment sector suffers. However, when the US needs to extend its manufacturing capability, this might imply alternative, particularly for Hermle as they want extra machines to provide excessive precision components and automation. Sure, there can be tariffs, however the Chinese language competitors is likely to be damage way more. That is clearly a inventory to look at intently on which aspect issues will go.Little change right here, nevertheless important publicity to potential US/Europe escalation. |
| Chapters Group | No direct publicity. Impartial.No change |
| Laurent Perrier | The US is the most important importer of Champagne (15% of whole manufacturing), so there’ll clearly be an affect. The massive query is: How giant will the affect be and what’s already mirrored within the present share worth ?No change. |
| Robertet | Robertet has important US publicity and is importing a big a part of their pure substances. However, their substances are usually not simply replaceable. The primary query might be about pricing energy in my view. |
| Bombardier | Bombardier is an fascinating case. On the time of writing, Bombardier is without doubt one of the few corporations outdoors the US, which isn’t topic to extra tariffs. So in concept they’re even in comparison with their main competitor Gulfstream. Nevertheless, this may clearly not keep that manner. In any case, the key danger for Bombardier can be if Trump will get offended at Canada once more or if demand from the tremendous wealthy would really drop. |