- "We could buy volatility or production on the metals and mining sectors."
- But sooner or later, metal and mining firms are set to see their margins reduced if the tariffs are imposed.
With global investors nervously eyeing the trade rhetoric between the U.S. and Europe, a selection of analysts have given their tips on how to position for any upcoming import taxes.
Kokou Agbo-Bloua, the global head of flow strategy and solutions at Societe Generale, told CNBC Tuesday that there could be short-term trading opportunities in the mining sector, if investors get their timing right.
"We could buy volatility or production on the metals and mining sectors. They have been the ones underperforming quite materially yesterday (Monday), for example, but the problem is that volatility is probably the best outcome," Agbo-Bloua said.
Volatility refers to how risky a specific stock is over a certain period of time. Given that the potential tariffs haven't yet materialized and, in the meantime, there has been some opposition within the Republican Party to such trade announcements, stocks of miners and steel producers could prove profitable to traders if they buy and sell at the right times.
Last week, President Donald Trump said that the U.S. would impose a 25 percent tariff on steel imports and 10 percent on imported aluminum. Trade partners, namely the European Union, Brazil and Turkey, have promised to retaliate if such tariffs are put forward, raising fears of a potential trade war. "Ultimately I think that's bad for everyone," Kokou Agbo-Bloua said.
Nonetheless, Agbo-Bloua said that, sooner or later, metal and mining firms are set to see their margins reduced if the tariffs are imposed. "If you think about it, it would be a disaster, to put it bluntly, because a lot of these metals and mining companies have quite tight profit margins," he said. "If you were to slap a 25 percent tax on the inputs costs … It will obviously jeopardize some of the profitability of these businesses."
Automakers have also been mentioned as sensitive areas if the tariffs move ahead. Analysts at Morgan Stanley said in a note that BMW is the most exposed to the tariffs given that up to 20 percent of its global sales are in the U.S., Reuters reported.
The analysts also mentioned Daimler and VW as auto stocks likely to suffer if the U.S. moves ahead with the tariffs. Morgan Stanley also cited capital goods stocks and aerospace as further areas set to be impacted by higher costs in steel and aluminum. The bank mentioned Assa Abloy, the Dometic Group, Electrolux, Kone, Sandvik, Schindler, SKF and Vestas as specific firms that would see higher raw material costs if the tariffs do materialize.