When President Trump announced he may slap $60 billion in trade tariffs against China, the stock markets had their worst day in several years and have been fighting an uphill battle shortly after. Geoff Wilson, Managing Director, TD Asset Management, speaks about how realistic is a trade war with China and what investors should really watch for.
Hello, and welcome to the show. Last Thursday markets had their worst day in more than two years. That's because President Trump announced trade tariffs against China worth $60 billion US dollars. Almost a week later, the markets still have a bit of a bad taste in their mouth, but have they overreacted to what may have been just a trade ploy? It looks as though some talks have started. And could the markets falter again if Trump issues more trade threats?
Joining me to help us navigate that and perhaps the more material things we should be looking at in the market is Geoff Wilson. He is Managing Director at TD Asset Management, and he joins me here in studio. Nice to see you.
Great to be here.
Now, I always think the big difference between people who talk about the markets and those people who actually manage money doing it in the market. So I wanted to get your thoughts. How do you digest, navigate, the whipsaw of headlines that are going? Because quite literally the markets, you know, they drop out one day because we're not-- we're going to have problems with China. You know, on a Wall Street, or a Wall Street Journal report the next day, they rocket up because they aren't going to-- and then a green train arrives in Beijing, and then-- it's like, these are really seemingly huge events just happening all the time. So how do you navigate it?
Well I think the key is to be ready for anything. And when I signed up for this job I signed up for volatility in the market. So when I see the volatility, it's just part of the job, it's part of what we do. Really it's about having a game plan. Hey if the markets go down, what's the plan? If markets go up too quickly, what's the plan?
And it's always, you've got to have a plan.
Well let me ask you then-- let's take a look at this news specifically then, the China trade issue. I think it's quite material, but is it? I mean, is it a very material issue?
Well, the issue we've known about since before the election. As soon as Trump won the election, it was like OK, well, are we going to fix the economy first or are we going to deal with the trade? And the economy came first, but we knew trade was coming, was just a matter of time. Whether it NAFTA or whether it was China. And so now it's just a matter of what are the next steps, and how aggressive, how quickly, and what happens next.
Yeah, but it seems as though-- do you think the markets will get a little more immune, perhaps, to what's going on? Because, I mean, you know, it seems like every little thing right now we see these huge whipsaw events, and now it seems to be, OK, we're calming down a bit.
Yeah, but I think there's an issue here, and Trump is very fixated on this issue.
You know, there's a trade imbalance and as far as he's concerned, this is an issue that needs to be addressed. So is it going away? I don't think so. As long as Trump's in office, it will be a part of what he talks about.
NAFTA I think is, is a smaller issue. Canada has a relatively trade balance with the US, so Canada is not the issue, and I think we've heard that. The deficit with Mexico is a bit of an issue for him, and it's good politics. So he's going to keep plugging away at NAFTA. And I think for him, getting a NAFTA deal done would be a plus, getting a deal done.
They didn't-- they caved.
Yeah, yeah and actually doing it. What about-- I mean, the one thing I found interesting in talking to you and your colleagues over the past year is that everyone is so enthusiastic I would say, about the fundamentals. Like the earnings are looking good, companies are doing well. But you have these massive, I'd say, unknowns, political, these other things going on. Are people still feeling as optimistic perhaps as they have been, let's say six months ago?
So the economy is in great shape.
And so now, it's OK, what's going to rock the boat here? So that's what we're concerned about. The tax deal was a good deal. It puts a lot of money back into the economy, so that's a plus.
You know when you start, you know, dealing with these trade issues, that's likely to reverse out some of the benefit. And so now we're saying OK, well, how much of the benefit is going to be kind of taken back here by slower growth related to trade issues? And will they escalate and will they get out of control? As long as it's just rhetoric and it's just part of a negotiating process, the market will be OK.
And we'll see some volatility, but that'll be fine.
I remember you and I were chatting earlier, and we talked about the rhetoric getting out of control. And that's the scary part, I think, is that if somebody launches something, their opponent is going to match it, save face. But then you have to go back and forth, and when does that actually stop?
Yes, so China came back after the $50 to $60 billion, with $3 billion. So it's a modest thing, but it's--
We're standing up to you, but it's within reason.
We're standing up, but let's negotiate. You want to get a deal done? Let's get a deal done. And so I think China's got a list of things that they're willing to be conciliatory towards. A big part of this last, $50 billion, $60 billion issue is more about intellectual property. And, you know, to be honest that benefits China as well.
So, you know, we've got to find these commonalities where they're both on the same page, where Trump looks like he's winning and the Chinese are like, yeah we're doing it anyway.
So these are all, you know, things that the market will appreciate. But when they start talking about cross purposes, then it becomes problematic. When you start looking at the whole deficit and say that's got to go away, that's a problem.
Right, you have to actually find things you can solve as opposed to the big ones.
Let me ask you again, when you and I were chatting before, you talked a bit about dispersion, and that's one of the things right now that you said is a little bit concerning to you in terms of what you're seeing in the markets. But let's back up and talk about just what dispersion is, what you were seeing, and what you're seeing now.
So let's put it in context. What we're talking about is stocks. Are they all moving in the same direction? Are they moving just at different rates of speed, in terms of going up or down? Or do you have a lot of diversification where some stocks are going up, other stocks are going down? And when every stock has got its own kind of program, that's a very good environment for stocks, because you get that diversification benefit.
And stock pickers, I think, too. Yeah.
Like I said, it's good on a number of levels. It's diversification, which is what we like. When everything is going up or down in particular at the same time, then it becomes a beta play on the market, and that's more problematic.
And where are we now?
Well, it's moved-- it's rolled over, and so things are moving without as many things driving the outcome as before. But there still is some diversification benefit out there. We've got different sectors doing different things. When all those sectors start performing the same way--
--it becomes more problematic. And that's what we've seen start rolling over a bit. So it is a concern for us, but, you know, I think it's probably a good time to say, OK, well, this is the correction that we've been waiting for. And now we've got stocks that are going to perform in line with revenue growth and the economy. So that's, you know, that's OK.
Well, we're going to have to have you back and get another take on how that dispersion is doing. Geoff, thanks so much.
Geoff Wilson, Managing Director at TD Asset Management.