Transcript:

Trade war’s becoming a bigger source of concern amongst investors, particularly in emerging markets, because a lot of those economies are very trade dependent. But there’s a difference between the first-order effects, the categories that are actually under trade restriction or trade tariffs now, and what might be happening in future.

China exports 2 trillion dollars’ worth of goods every year. So putting tariffs on 50 billion of goods going into the US is just a drop in the ocean. But what’s concerning investors is where it goes from here. How much bigger could the impact be? There are clearly some parts of the markets that are going to be affected by this—export companies, for example, that are directly impacted by the tariffs. But it’s important to note that a lot of emerging markets these days are not directly trade related—for example, the consumer sector. Look at China, the most reliable, consistent part of China’s GDP growth is consumption. And as investors, we can find lots of interesting opportunities in the consumer area that are much less related to what’s going on with any potential trade war.

It’s very hard for anyone to guess where the trade war may go in future, so as an investor, you’ve got a couple of approaches to try and protect or defend against that. One is to look for areas that are somewhat insulated from the trade war concerns: go domestic, look for the consumer sector and things which are not connected to global trade. That’s one important strategy. A second one is to actually look for areas that may benefit if the trade war takes off. One example is in China, is to look for domestic innovation companies in technology. Because the more the trade war risks rise, the more China is concerned to boost its own homegrown technology, and investors can benefit from that.

As an investor, I think you need to be careful not to assume you’re going to have insight into where the trade war concerns end. Instead, you need to look for ways to insulate or protect yourself in case it gets worse, while staying alert for opportunities in case the situation does get resolved. And maybe you can pick out some stocks that are unfairly punished.