Selling Out of China and Reducing Banks
In response to Trump's 60% tariffs likely to be imposed on China and falling interest rates.
Trump is looking increasingly likely to win. With a Republican sweep priced in as most likely in the betting markets, his policy of 60% tariffs on China looks set to become real.
Trump and the Republicans want a laundry list of things:
Higher tariffs
Lower interest rates
Fiscal expansion
Weaker USD
Lower inflation
1 to 4 are incompatible with 5. Higher tariffs, lower interest rates, fiscal expansion and a weaker dollar all point to inflationary pressure.
The only way to hedge a Trump win and his inflationary policies would be to shelter in high-yield cash.
However, with the likely Democratic nomination of Vice-President Kamala Harris, the odds are set to get more interesting.
Whether Trump or Harris wins, both administrations are going to impose higher tariffs on China. They are likely also to increase pressure on their allies, EU and Japan, to increase tariffs on China as well.
Iโm selling out of the Chinese stock index, due to its exposure to export-sensitive sectors. I am keeping however a small allocation to Chinese dividend-paying SOEs.
I am especially selling out of Chinese banks. Their net interest margins are compressing and their bank loans are rolling over. They are trading at a 1-year high due to state purchases.
As for Singapore banks, I will be looking to reduce the positions after their results in August.
I'm rotating out of China into a mix of long bonds and cash. This is a good moment to lock in some high long bond yields before yields fall further.
This brings my asset allocation in the growth equity portfolio to 13% cash and 87% stocks. The biggest exposure is two thirds equity exposure to the S&P 500 and second biggest at 9% to gold and gold miners.
In a 1 July post to paid subscribers, I also mentioned selling out of EM Asia, to reduce exposure to semiconductor stocks like TSMC. TSMC has since dropped -6% since then.
In a 17 June post, I also mentioned de-risking out of Europe ahead of the French election. The Eurostoxx has since fluctuated quite a bit, ending about -0.6% since mid June.
However, I will be holding on to the S&P 500 ETF, and will only seek to add perhaps small caps or the main index in the event of further volatility when my entry levels are reached.
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