Newscasts - Market Insight: Aggressive Trump China policy could be 'problematic' for Big Tech

Gentex

18/07/2024 18:23

Click the following link to watch video: https://share.newscasts.refinitiv.com/link?entryId=1_v4zpr80p&referenceId=1_v4zpr80p&pageId=Newscasts
Source: 'Reuters - Business videos'

Description: Donald Trump is set to accept the Republican nomination for the
presidency this evening - after promising steep tariff hikes on products
coming from China. Brian Krawez of Scharf Investments told Reuters that could
be 'very detrimental' not only to U.S. firms that manufacture there, but also
to all those who rely on the Chinese consumer.
Short Link: https://refini.tv/3W2sgE4

Video Transcript:

Donald Trump is set to accept the Republican nomination tonight, but what
would a second term mean for markets? Welcome to Market Insight. I'm Elena
Casas. Five days after narrowly escaping an assassination attempt, Donald
Trump will accept the presidential nomination at the RNC this evening. As
incumbent Joe Biden faces growing calls from his own side to pull out of the
race, markets are already moving to price in a second Trump term. On
Wednesday, the chip sector lost more than $500 billion in market value after
Trump told an interviewer that major chip producer Taiwan should pay the US
for its protection. Well, joining me now to talk about what a Trump victory
could mean is Brian Krawez President of Scharf Investments. Welcome, Brian.
Can we start then with the chip question, the recent AI boom has been heavily
reliant on chips made in Taiwan. But what could a second Trump term mean for
that sector?

I mean, you've heard Trump as you mentioned earlier Taiwan talking about not
defending Taiwan. He's also talking about tariffs. You've also heard from the
Biden Administration some similar things in terms of protecting US proprietary
rights. So, a second Trump term is probably going to be even more aggressive
versus China. And ultimately it could be good for certain companies like
Samsung that are not in Taiwan and so generally speaking Trump could be
problematic for some of the tech leaders that have been really powering the
market this year.

What about the consequences for US tech giants like Apple who manufacture a
lot of their products in China?

That's a really good question. There's a couple effects of a potential Trump
policy. Number one is actually people haven't really been talking about this,
but JD Vance has actually been an advocate of breaking up companies like
Google. So, regulatory pressures on Big Tech won't necessarily go away, even
though people are thinking that Trump is more a deregulatory guy. And then in
terms of manufacturing, certainly tariffs will make it harder for
manufacturing not only in China but in other places, and also tariffs going
both ways could be very detrimental, particularly to names like Apple, Nike,
Starbucks, who are dependent on selling a lot in in China. And there certainly
be retaliatory tariffs going both ways. So, I think investors should be a
little bit cautious on names that are really dependent on China for their
sales, not only just their manufacturing.

More broadly, on trade, he has promised higher tariffs not only on China, but
on a broad range of countries. Is that good news for US manufacturers or could
it simply be inflationary?

Probably both actually, we think that inflation will be higher under a Trump
term and that could hurt multiples generally, but more specifically should
actually help value stocks. We've taken a look at when interest rates are
above 4% on the 10-year. Actually, value stocks tend to outperform, when
interest rates are below 3%, growth stocks tend to outperform. So, should be
good for value stocks and then specifically US manufacturers and we think
it'll also be good for companies like Gentex that are manufacturing in the US,
but it will also be some winners and losers out of those tariffs.

You predicted their higher rates under a Trump term. Is the potential that he
could win in November, causing a headache now for the Fed do you think?

Well, the Fed is really focused on the year and the now, I think they're still
charging towards rate cuts because you've got inflation coming down at the
moment and you've got the potential for a recession coming down the road. So,
anything that happens with Trump will be more down the road and the Fed will
have to deal with it at that time. But right now, we're probably still headed
towards some rate cuts in the near term.

What do you think it could mean the election of Trump for the bond market,
since he's promising lower taxes, which could mean higher US debt?

We think that for the bond market rates right now 10 years around 4.15%, I
hear a lot of people say well that's high. But really investors have been sort
of colored by the last 15 years when rates were abnormally low. So, our bet is
that rates should be much higher in the next 15 years than they have been in
the past 15 years, and particularly if Trump wins, there's a high likelihood
that that rates will be higher. And obviously with bonds. You're talking about
longer term bonds, higher rates being lower prices. So, we'd be a little
cautious about going too far out on the duration curve even though the Fed
could be cutting rates in the near term. If you go too far out longer term,
you could be hurt by higher rates.

Moving back to equities, what stocks do you think could benefit from a second
Trump term?

Well, I mentioned US manufacturers like a company like Gentex. Actually, if
you're thinking about on the chip side, there's a company like Samsung. We
also think reduce regulations on US drilling can help companies with high
exposure to US oil and natural gas, names such as Occidental Petroleum. And
his pick, JD Vance, sponsored the Affordable Connectivity Program Extension
Act that will actually be helpful for high-speed Internet providers such as
Comcast. So, in addition to US manufacturers, drillers, there's some
idiosyncratic names that could also benefit that investors need to kind of
think through.

Brian Krawez of Scharf Investments, thank you so much for joining us. Well,
that's your Market Insight