Flow Traders Investment Competition: Trumps Trade Tariffs

Just as the investor climate in the US seemed to recover after the major sell-off at the beginning of 2018, major indices experienced a rough week again. With the Dow Jones falling about 3.4% and the S&P 500 also plummeting by 2.4%, US markets have not been able to continue the winning streak of the past few weeks.

On Thursday, President Trump announced import tariffs of 25% on steel and 10% on aluminium. Initially, Trumps proposed import tariffs scared investors and the threat of a trade war fuelled the selling heat, only to calm down after investors realised Trump has backed down more than once already. Both the Dow and S&P closed with a modest plus on Friday, indicating that investors don’t fear that the tariffs translate into too fierce protectionist policies. The tariffs have been welcomed by the steel industry in the US, but important trade partners, such as Canada, have threatened with retaliation if the tariffs are imposed.

Furthermore, European markets have suffered as well last week. Especially in Germany, where a climax was reached in the process of forming a new government, investors have experienced a tough time. The DAX went down a little more than 5% over the past week, losing 12% already in the course of 2018. This Sunday, however, a breakthrough in the formation of a new government occurred. In an internal referendum, members of the SPD (social democrats) voted to join the ‘grand coalition’ and govern the country for the third time, together with Chancellor Merkel’s party CDU.

Expectations are that this result could calm European markets as Germany, one of the stable and influential countries in the EU and European internal market has finally reached a coalition which allow them to focus on European and domestic policy again.

Most of the investment groups have not been able to take advantage of these rough times. Only two groups have made a profit, albeit a small one. Succes is een keuze was able to withstand all the heat by their greatly diversified portfolio and Fundamenta Fortis’ investment in Ahold Delhaize resulted in a small profit.

On Wednesday Ahold announced that shareholders can’t vote over future protection against hostile takeovers. As Amazon is increasingly active in the field of groceries, Ahold fears to become a prey of the multibillion-dollar company. Especially their American subsidiaries seem to be attractive parties that Amazon could lay its eyes on, after their acquisition of Whole Foods. Ahold Delhaize is currently protected by the Stichting Continuiteit Ahold Delhaize (SCAD), as this foundation has options on preferred stocks, enabling it to prevent a hostile takeover. In the end of 2018, these option contracts expire and Ahold announced in 2016 that shareholders could vote over a possible extension of the contract. After the influential Glass Lewis advised to vote against the continuation, Ahold denied shareholders to vote on the issue.

Written by Joppe de Bruin