In a recent article, I explained why Barclays is a share best avoided this decade. It’s a reflection of the likely persistence of low interest rates and challenging economic conditions across the world. But it isn’t the only FTSE 100 blue-chip I think has the capacity to destroy investors’ wealth over the next decade.
BHP Group (LSE: BHP) is another blue-chip that could seriously disrupt your capital-building plans. As I mentioned in that Barclays piece, the economic impact of Covid-19 casts a pall over the global economy during the medium term and possibly beyond.
For FTSE 100-quoted BHP, the geopolitical implications of the pandemic really threaten to put gaping great hole in its profits too. I’m talking of course about the frosty rhetoric between the US and China over the origins of — and the response to — the coronavirus. It’s a problem that threatens to blow recent trade talks between the superpowers out of the water.
In characteristic fashion President Trump fired off a fresh salvo on Twitter last night that put into doubt more recent progress. At the same time, Chinese state newspaper Global Times claims Beijing is considering slapping retaliatory sanctions on US companies and individuals who are themselves claiming damages for the outbreak.
Cheap but chilling
Signs of a worsening relationship is bad news for metals demand. Slumping global trade will, of course, hit underlying consumption from inside commodities glutton China. Meanwhile, tough economic conditions will likely lead to more rounds of aggressive devaluing of the yuan. And this will make it much more expensive for Chinese buyers to load up on US-dollar-denominated raw materials such as iron ore and copper.
This is why I’m happy to give BHP’s shares a miss today. I don’t care about its low valuations (right now it carries a forward P/E ratio of around 6 times). I’m also happy to ignore its near-7% corresponding dividend yield. And on top of the possibility of severe demand destruction, the FTSE 100 mining giant faces the prospect of surging supply in many of its core markets (like iron ore) during this new decade.
Another FTSE 100 trap?
The twin threat of coronavirus fallout and renewed trade tensions would lead me to avoid Burberry Group (LSE: BRBY). Indeed, it’s likely that tariffs will be slapped on a variety of consumer goods as an ongoing consequence of the US-China spat. Sales of the Footsie firm’s luxury fashion could be a serious casualty in the years ahead.
Burberry faces other politically-linked problems related to its Asian markets, namely ongoing demonstrations in its critical Hong Kong marketplace. Protests by pro-democracy protests have been raging since last spring. And there has been a large resurgence in recent days following the lifting of the recent Covid-19-related lockdown.
Burberry doesn’t even look that attractive at recent prices, its forward P/E ratio currently sitting around 22 times. There are many much more appealing FTSE 100 stocks to buy right now.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and Burberry. 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.