March 16, 2018

Is everything which is exaggerated meaningless?

Management comment

“You’re fired” was effectively Donald Trump’s comment to his Secretary of State Rex Tillerson, in an eerie echo of The Apprentice TV show formerly hosted by the US President. US presidential authority is not to be judged solely in terms of human resources management however.

He also blocked the proposed merger between the Singapore-based group Broadcom and Qualcomm on grounds of IT security. Meanwhile governments around the globe are beginning to erect entry barriers to prevent the the flight of their domestic economic leaders and tech companies. The incumbent powers in the eurozone are attempting to create national or pan-European champions (Alstom/Siemens Transport) in order to face international competition. The Finnish government has taken a 3.3% stake in the domestic telecom equipment supplier Nokia.

China is jealously guarding its treasured rare-earth commodities representing almost 90% of global exploitation. Despite criticism, Japan has maintained its keiretsu conglomerate shareholding structures. Protectionist policy is currently being analysed as a potential obstacle to further globalisation. This is not the first time that the US president has announced customs charges on aluminium and steel imports, having already brandished the threat of a border tax adjustment without any real follow-through.

In the words of the French statesman Charles-Maurice de Talleyrand, all that is excessive is insignificant. Tougher comments tend to imply less resolute action. Threats alone sometimes suffice to weigh on the conduct of competitors or enemies. During the triple devaluation of the renminbi in August 2015 by the Chinese authorities, similar fears of a currency-driven trade war loomed over the markets, but ultimately disappeared shortly afterwards.

The macro and micro-economic context is very different from 2015. If earnings momentum is confirmed and the bellicose rhetoric dries-up, a healthy equity market rally may be expected during the second half of 2018, notably in Europe, as the Nasdaq is already a long way ahead.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in March 16th, 2018

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“You’re fired” was effectively Donald Trump’s comment to his Secretary of State Rex Tillerson, in an eerie echo of The Apprentice TV show formerly hosted by the US President. US presidential authority is not to be judged solely in terms of human resources management however. He also blocked the proposed merger between the Singapore-based group...
2018-03-16