Survey: Global Investors Downplay Trump-Related Risk

A Goldman Sachs survey finds European and Asian investors are minimizing risks from U.S. trade policy uncertainty.


The euphoria that permeated the U.S. equity markets in the week following President Donald Trump’s inauguration has quickly spread across the globe — that is, if you are a global investor with significant holdings in companies with sales exposure the U.S. That’s according to a survey of 2,000 attendees at last week’s Goldman Sachs Global Macro Conference in Hong Kong.

While some financial industry observers had been predicting greater risk due to heightened U.S. trade policy uncertainty, “bolstered by dollar strength the most U.S.-exposed foreign stocks have outperformed local equities since the election,” according to a Goldman Sachs report dated January 27. The firm’s portfolio research team predicts the Standard & Poor’s 500 stock index will reach 2,400 before the end of March. But it also cautions that “the reality of politics” could still cause a dip later in the year.

Goldman Sachs clients who think the global markets will continue to improve said equities (45 percent) will achieve the highest returns in 2017, followed by commodities (34 percent). The biggest risks are seen in geopolitics (61 percent) and rising interest rates (21 percent). Protectionism and trade wars are top concerns, due to Trump’s emphasis on domestic employment and manufacturing, as well as his withdrawing the U.S. from the Trans-Pacific Partnership and renegotiating the North American Free Trade Agreement (NAFTA).

Goldman predicts the European Union will be less of a political focus in potential trade wars, because the EU represents only 8 percent of manufactured imports to the U.S. Instead, EU exports tend to come from the technology sector or are produced with highly skilled labor, with concomitant high margins and more pricing power to withstand potential changes to tariffs.

The Goldman report explains that European stocks that have the largest U.S. sales exposure generally own U.S.-based businesses, rather than exporting to the U.S., adding further insulation to their trade or border-tax risks. These companies have outperformed a basket of European equities (excluding financial companies) by six percentage points, while the U.S. dollar strengthened by 4 percent versus the euro.