Last week has not only brought a clear win for Donald Trump but in parallel also the (final) downfall of the German “Traffic Light” coalition.
US Markets celebrated the clear outcome, further increasing the outperformance of anything US based. Everyone now tries to figure out what a Trump administration will actually do, but the “market” seems to agree that it will be “pro business” and therefore great for US stocks (and Crypto and of course Elon).
Lower corporate taxes, more oil & gas drilling and tariffs on every import with a focus on China seem to be something the US stock market really likes.
One way to play this as an investor would be to join the various “Trump/Musk/Thiel Trades” like Bitcoin, US Bank, Palantir Tesla or the likes or just switch (even more) into ever winning US stocks. My inner contrarian however is screaming “red alert” as in my opinion a lot of this or even too much is already baked into US asset prices in general. But maybe it’s just my envy that US assets are performing so much better than what I own ? Who knows.
On the German side, initially markets seemed to be happy that the German coalition has finally crumbled, assuming that it can only get better. Personally, I hope the same but there is clearly a risk that there might be a nasty outcome of a snap election in the current environment. In the mean time the market seems to have realized that Trump plans to play a zero sum game with everyone but the US being a potential victim.
If the conservative CDU/CSU party will be in the lead, then renewable energies will have a harder time in Germany, too. Mr. Merz. the potential next Chancellor is favring Fusion and Nuclear energy. But more on that in a separate post. On the German side, the already battered car companies clearly will see negative consequences from US tariffs.
When US tariffs really hurt China, this will also not be good for companies with significant activities in China. Which again would mean more bad news for car manufacturers and suppliers.
Some months ago I would have assumed that this is already priced in to a large extent, but in the current environment there seems to be no valuation bottom for European stocks at all.
Portfolio check
As in my previous two chapters of the “Panic Journal” (Covid, Russia attack on Ukraine), the Trump victory is an event that will clearly have various impacts on the global economy and my portfolio.
My approach is (again) to look at negative exposure in my portfolio first before thinking about profiting from what has happened or could happen.
The main area of concern in my opinion are clearly direct tariffs on imports. If you are a non-US company that exports a lot into the US without the chance to move production anytime over soon, you might have a short term problem. Additionally, if the US really manages to hit China economically, any large China exposures might be at risk, too.
On the other hand, if you have successful local US operations, theoretically such a company should benefit from lower taxes etc.
So let’s run through the list of portfolio companies one by one (sorted by size descending):
| Stef | No direct exposure, both to US and German policy changes in my opinion. |
| TFF | Slightly negative exposure to European wine exports to the US, slightly positive exposure to lower taxes for the (growing) US operation. Overall neutral. |
| DCC | No exports.Potentially some negative impact on “clean energy” initiatives, on the other hand 20% of OP realized in the US, traditional energy business might have a longer runway. Slightly positive. While I have been writing this. DCC announced to focus on energy, to which the share price reacted positively. |
| SFS | SFS mostly produces locally. However, via the acquired Hoffmann Group they have exposure to most of Europe’s exporters from the machining industry. On the flipside, Chinese competitors to SFS’s customers might suffer even more. Still, overall slightly negative, at least in the short to mid term. |
| ATD | ATD has a lot of business in the US, so lower taxes should be good. Higher interest rates for the Japanese Acquisition (if it goes through) would be negative. Overall slightly positive. |
| Italmobiliare | No relevant exposure apart from some US based PE funds. Overall neutral. |
| Eurokai | A very interesting question. If global trading volume would decline significantly, Eurokai would be negatively affected although direct exposure to US lines is relatively low to my knowledge. Overall, slightly negative. |
| G. Perrier | No exports to US to my knowledge, overall neutral or slightly positive (Nuclear, defense) |
| Fuchs | Local production, no exports. However, exposure to European Automobile industry, slightly negative |
| EVS Broadcast | The US was one of the target markets to expand. For the hardware part, Tariffs might be a (small) issue, but I guess all competitors import their gear. EVS might even have an advantage as they assemble in Europe and do not import directly from China. Neutral to slightly positive. |
| Royal Unibrew | No US exposure at all to my knowledge.Neutral. |
| Thermador | Only local French business, neutral |
| Energiekontor | US project rights might be negatively affected. Also, next German Government might de-prioritize renewables. Slightly Negative. Not sure how much is prized in. As it seems there is no bottom at the moment. |
| SIxt (Vz&St) | Sixt hasa been growing aggressively in the US. It will be harder for Sixt to get (German) premium cars in the future for the US market. Overall, I see slightly positive impacts on Sixt. During writing the post, Sixt released Q3 results and guided to the lower end of the range for 2024. Maybe I am wrong, but I still see the more upside than downside. |
| Sto SE | No exposure to US. New German Government might be less keen on insulation, but maybe more active in pushing more building activity. Neutral |
| Bouvet | No direct US exposure. The Norwegian economy is still geared towards oil & gas prices. Neutral. |
| SAMSE | Exposure to the French construction and renovation sector. Not directly impacted. |
| Hermle | Hermle is a more difficult case. On the one hand, they will clearly suffer if the European machinery sector suffers. On the other hand, when the US wants to increase its manufacturing capacity, this could mean opportunity, especially for Hermle as they need more machines to produce high precision parts and automation. Yes, there would be tariffs, but the Chinese competition might be hurt much more. This is clearly a stock to watch closely on which side things will go. |
| Amadeus Fire | No direct exposure, however clearly indirect exposure towards a prolonged /German/European economic slump especially for the recruiting segment. Interestingly, just when I wrote this, activist fund AOC started a 9,4% position. |
| ABO Energy | As a pure Renewable Developer, ABO is even more sensitive towards (significant) changes towards Renewable Energy policy. Overall more negative. |
| Chapters Group | No direct exposure. Neutral. |
| Laurent Perrier | The US is the largest importer of Champagne (15% of total production), so there will clearly be an impact. The big question is: How large will the impact be and what is already reflected in the current share price ? |
Overall the impact of this shift is slightly negative for the portfolio. As mentioned above, maybe part of this is already reflected in the low valuations but for some of my portfolio companies there seems to be more pain to come.
I have marginally reduced exposure in ABO Energy and SFS, but for the time being I am still in wait and see mode. In parallel I am working on an updated energy thesis, especially for the European market.
I think the main “hedge” I have in the portfolio is the quality of the management teams. As in the past, good management teams will manage these challenges and maybe come out even stronger. Most portfolio companies have really good management teams.
Conclusion: We have seen this movie before
As a small cap Value investor, the most important issue is to grow a really “thick skin” against the current craziness we see in the market.
Once again, people make easy money in Crypto and very speculative stocks in a very short period in time.
Small caps and value stocks really look like a losers game. The older investors have seen this movie now several times before (2000, 2007, 2021) but it is not easy to stay the course as especially on social media everyone else seems to get rich quickly.
Nevertheless, one should watch cautiously if for some reason one or the other portfolio companies is caught in a really bad situation.
Bonus Song
And also this time I add a song that might cheer up fellow Shitco err Value Investors: