US protectionism puts corporate profits at risk

The sustained move towards protectionism initiated by the Trump administration can further derail economic growth, leaving corporate profits in the US even more at risk than GDP, according to Lazard Asset Management.

The company’s co-head of multi-asset and head of US equities, Ronald Temple, stressed that understanding how a business and its competitors were exposed to that risk was critical to evaluating the potential impact of protectionism on profits.

“As a result, protectionist policies will likely be even more meaningful for corporate profits and markets than for the economy. Many companies also have significant overseas revenues and assets which could be exposed,” he said.

“The combination of US protectionism and Fed monetary policy tightening could trigger the next

bear market in equities and perhaps even the next economic recession.”

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However, according to Temple, some US companies could actually become potential beneficiaries and this would include the following companies:

• Those that operate in protected industries,
• Those that have domestic supply chains,
• Those who have primarily domestic sales,
• Those that sell products for which customers are less sensitive to price.

According to Lazard AM, it was important for investors to assess what was potentially exposed and how at a company level.

“Doing so is difficult, due both to the globalisation of business and supply chains and to inadequate disclosures at the company level. However, understanding these exposures, as well as competitive positioning, is critical to evaluating risks and rewards and positioning portfolios appropriately,” Temple said.