Fast Abstract:
This put up incorporates extra random musings in regards to the present state of affairs, plus an up to date “portfolio verify” on the finish. So be happy to leap to the tip if you’re solely within the portfolio verify.
Background:
On the finish of 2024, I wrote a primary put up about what would possibly 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 development has changed into an virtually 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 relating to the long run route 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 could 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 laborious to match immediately, Trump II appears simply as chaotic as Trump I. However there’s 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 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 concentrate on China, however they don’t appear to care if the remainder of the world goes up in flames.
The Function of Traders within the US Commerce Imbalance: Free Money Move and Capital Effectivity
From Trump’s viewpoint, the narrative is usually that China, Europe, and even “the Penguins” have stolen manufacturing jobs via unfair practices—primarily by providing cheaper labor.
However one angle is usually forgotten: investor strain on corporations to remain “capital gentle” and generate important free money circulate.
Once you discuss to traders about European shares, one argument all the time comes up: “Look how weak free money circulate is in 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 selection: 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 circulate from companies (GEICO), sugarwater & caffeine (Coca-Cola), or branded sweet (See’s Candies).
For my part, 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 during the last 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 at the least, a part of the reply is likely to be that many corporations had been family-owned, with house owners 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 truly manufacture themselves—have far increased returns on capital and free money circulate than Samsung or TSMC, who nonetheless do plenty of their very own manufacturing.
This is among the fundamental the explanation why US markets have massively outperformed everybody else for many years.
The Huge Query
Who will present the capital—and settle for the low and risky returns—to convey manufacturing again to the US?
Perhaps some Chinese language corporations could be prepared to construct factories within the US for low returns, however the People seemingly gained’t enable it.
European companies won’t 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 glad with a decrease return on capital.
This is only one flaw within the “tariffs will convey 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 probability these events will enter authorities subsequent time.
What they’ve achieved thus far appears… okay. Not nice, however okay.
On the EU degree, the response has thus far been measured and cheap. Nonetheless, the Trump administration clearly harbors deep resentment towards Europe. Assuming a “no tariffs” final result could be naive.
I see actual potential for escalation—possibly not fairly as unhealthy as with China, however Trump’s affection for Putin ought to make Europe cautious of anticipating honest 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 superb cope with unhealthy folks”.
To date in 2025, European—and notably German—shares have considerably “decoupled” from the US. However I don’t imagine this will likely be sustainable.
“There Will Be Blood”
It doesn’t matter what occurs within the subsequent weeks or months, in my opinion, plenty of harm has already been achieved.
The tariffs proposed by Trump are so excessive that no critical businessperson can confidently allocate capital with out realizing the place issues are headed. And because it stands, there gained’t be readability anytime quickly.
If you happen to spend money on the US, who’s to say these tariffs gained’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 corporations with sturdy 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 undergo.
In fact, there will likely be winners, too. Smuggling—or “optimizing provide chains”—may turn out to be massively worthwhile once more. Subtle logistics companies that may reroute and repackage items will do nicely.
Native gamers who profit from diminished international competitors will even revenue. Something that guarantees “independence from China” will seemingly do nicely within the quick time period.
However once more—this could possibly be short-lived.
Consensus Trades & Structural Winners
The present consensus trades are:
- Gold (inflation hedge)
- European protection
- Uncommon earth mining
We’ll seemingly 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, as an example:
- Infrastructure with inflation-linked pricing energy (changing it will be pricey)
- Round financial system gamers—recycling important uncooked supplies may turn out to be a key benefit if commerce wars intensify.
“Protection First” – Up to date Portfolio Verify
I’ve stored the outdated replace from final 12 months and made modifications the place wanted, together with new positions
| STEF | No direct publicity, each to US and German coverage modifications for my part. New: decrease oil/power costs and rates of interest optimistic, no direct influence of tariffs |
| TFF | Barely unfavourable publicity to European wine exports to the US, barely optimistic publicity to decrease taxes for the (rising) US operation. General impartial.TFF is possibly probably the most difficult case. US Bourbon exports will likely 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 unfavourable influence, additionally extra friction than prior to now for TFFs fundamental clients on prime of behavioural modifications (much less alcohol consumption general). |
| DCC | No exports.Doubtlessly some unfavourable influence on “clear power” initiatives, however 20% of OP realized within the US, conventional power enterprise may need an extended runway. Barely optimistic. Whereas I’ve been scripting this. DCC introduced to concentrate on power, to which the share worth reacted positively.The enterprise as such will almost certainly however not affected. Nevertheless, the present divestment plan of the non-Vitality actions will likely be clearly hit by decrease comparables and diminished deal exercise. So in the meanwhile, unfavourable influence.l |
| SFS | SFS largely produces domestically. Nevertheless, through the acquired Hoffmann Group they’ve publicity to most of Europe’s exporters from the machining trade. On the flipside, Chinese language opponents to SFS’s clients would possibly undergo much more. Nonetheless, general barely unfavourable, at the least within the quick to mid time period.Not a lot change right here, with the one exception that SFS for my part has first rate publicity to the European metallic working trade, which could profit from elevated protection spending. I’m shocked how a lot the share worth went down. |
| ATD | ATD has plenty of enterprise within the US, so decrease taxes must be good. Greater rates of interest for the Japanese Acquisition (if it goes via) could be unfavourable. General barely optimistic.A US recession would clearly be not nice, however nonetheless this can be a very resilient enterprise for my part. |
| Italmobiliare | No related publicity aside from some US primarily based PE funds. General impartial.No large modifications right here i assume. |
| Eurokai | A really attention-grabbing query. If international buying and selling quantity would decline considerably, Eurokai could be negatively affected though direct publicity to US traces is comparatively low to my data. General, barely unfavourable.Once more a really attention-grabbing 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 optimistic (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 trade, barely unfavourable.No large 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) concern, however I suppose all opponents import their gear. EVS would possibly even have a bonus as they assemble in Europe and don’t import immediately from China. Impartial to barely optimistic.No change right here, nonetheless, a recession within the US may in fact negatively influence development., |
| 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 optimistic impacts on Sixt. Throughout writing the put up, Sixt launched Q3 outcomes and guided to the decrease finish of the vary for 2024. Perhaps I’m fallacious, however I nonetheless see the extra upside than draw back.A transparent unfavourable for my part 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 automotive imports would possibly hit the weaker opponents a lot tougher. A optimistic is clearly that residual values of used vehicles 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 direction of oil & fuel costs. Impartial.Decrease oil costs are typically not optimistic for the Norwegian financial system. In any other case impartial. |
| SAMSE | Publicity to the French development and renovation sector. In a roundabout way 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. However, 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 could be tariffs, however the Chinese language competitors is likely to be harm rather more. That is clearly a inventory to observe carefully on which aspect issues will go.Little change right here, nonetheless important 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 whole manufacturing), so there’ll clearly be an influence. The large query is: How massive will the influence 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 usually are not simply replaceable. The principle query will likely be about pricing energy for my part. |
| Bombardier | Bombardier is an attention-grabbing case. On the time of writing, Bombardier is among the few corporations outdoors the US, which isn’t topic to extra tariffs. So in concept they’re even better off in comparison with their main competitor Gulfstream. Nevertheless, this may clearly not keep that manner. In any case, the main danger for Bombardier could be if Trump will get indignant at Canada once more or if demand from the tremendous wealthy would truly drop. |
