Co-Head of Equities
Portfolio Manager of Putnam International
Equity Fund and Putnam Europe Equity Fund
Cases of unjustified collateral damage are beginning to appear, in our opinion, changing the opportunities and risks for active managers.
JapanJapanese industrial and technology stocks have sold down disproportionately when trade war rhetoric increases. This tendency may offer attractive investment opportunities. Japanese stocks appear to weaken due to a combination of perceived exposure to China's supply chain, whether the exports are to China or another country, and because the yen typically strengthens when investors are averse to risk. This can act as a headwind to overseas revenue and profit growth for Japanese companies, but in specific cases we think this is unjustified given strong ongoing company fundamentals.
GermanyGermany seems to be a particular target for President Trump on a range of issues, including defense spending, immigration policy, and its current account surplus. As a result, German exports of high-end autos to the United States are a potential target for additional tariffs. This is one of various reasons we favor underweight positioning in German auto companies, preferring to get any auto exposure through globally advantaged suppliers.
Portfolio Manager of
Putnam Global Industrials Fund
IndustrialsFor companies in the Putnam Global Industrials Fund portfolio, direct exposure to China is limited. That is, a relatively small portion of their revenues — 0 to 12% — comes from China. We believe this is manageable for an environment in which global demand is still recovering and capital remains cheap. Specific stocks may garner headlines as a tactic to enhance negotiating leverage with trade partners, but so far, the direct impact on our investments is muted, in our opinion. The greater risks are the effect on demand through price elasticity (as prices rise, demand falls), decreased cross-border business activity, and the loss of business confidence — a psychological factor that would have a negative impact on investment budgets.
Portfolio Manager of
Putnam Global Technology Fund
TechnologyThe current tariff list includes only limited consumer electronics products, and we expect it to have little direct earnings impact on global technology companies. However, we are assuming the worst is ahead and are putting a major effort into discounting the impact of further escalation. In a worst-case scenario, where all imported consumer electronics products would be subject to tariff, most of the impact would be on technology hardware companies, which would face both volume and margin risk. Semiconductor companies would also face volume risk. Fortunately, for Putnam Global Technology Fund, we were already maintaining underweight positions in hardware companies. Also, most of our overweight positioning in China is in the internet sector, which is not exposed to the international market and is relatively immune to trade wars and tariffs.
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