Will Donald Trump’s trade war make or break your portfolio?

Trade wars, what are they good for? Picking up hot stocks at reduced prices, says Harvey Jones.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As if the stock market hasn’t been volatile enough this year, now we face the prospect of a trade war between the world’s two largest economies. It’s enough to make you shift your portfolio into cash and hunker down for the rest of the year, but please don’t do that.

War worries

Selling up ahead of an expected macro meltdown is one of the biggest mistakes investors make. All too often, the meltdown does not happen. Spirits quickly revive and those who sold at the point of maximum worry watch helplessly as markets race upwards. That could easily happen today.

What we have is a lot of political posturing, with President Trump suggesting he might slap another $100bn tariffs on China, “in light of China’s unfair retaliation”. China’s Ministry of Commerce has pledged to match any of Trump’s measures with “comprehensive countermeasures, to firmly defend the interest of the nation and its people”. Boys, please. Simmer down.

Mutual destruction

The US does have one factor in its favour, its exports to China are relatively tiny, at just $130bn a year, against $506bn of imports, a deficit of $375bn. On the other hand, China holds $1.2 trillion of US debt. Selling a fat chunk of that could trouble the US, but not unduly. While China holds around 20% of foreign-owned US debt, this is barely 7% of the total, with much of it held in the US itself. Also, selling off US debt could drive up the renminbi, and make Chinese exports more expensive. Perhaps Trump does have the whip hand after all.

History suggests that trade wars create plenty of losers, but few winners. We all know what followed the Smoot-Hawley Tariff Act of 1930, which pushed through protectionist trade policies.

What happens next, nobody knows. US stocks look overvalued as measured by the Shiller index, currently at 32.04. China’s economy is slowing as the government battles endless bubbles. The eurozone has barely reached escape speed, despite all that QE. Let’s not even mention Brexit. Also, there are signs that rising interest rates and QE cutbacks are starting to slow the money supply.

Winnable war

If you are likely to need your money in the next year, you should consider selling. In fact, you shouldn’t be in the stock market anyway. But if you are investing for five years or longer, all you can sensibly do is stay put. Selling now will only rack up needless charges, and leave you facing the difficult decision of when to buy back into the market. Also, you will miss all those juicy dividends.

Stock market volatility is back, but you can take advantage. One option is to buy on the dips, picking up your favourite stocks when prices are down, or investing in top global investment trusts like these two. Or maybe this top global exchange traded fund. Alternatively, set up a regular monthly savings plan. The trade war is bad policy, it will not last. Take advantage while you can. This is a war you can win.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »