Fidelity says worst of tariff impacts are over

by Ruth Carson

Financial markets have seen the worst of Donald Trump’s tariff threats, helping make midcap stocks an attractive buy as the outlook improves, according to a Fidelity International money manager.

Japan, Germany and China midcaps account for about 11% of Fidelity’s growth and income fund — making them some of the strategy’s highest conviction trades, said George Efstathopoulos. In contrast, there was “very limited exposure” to such stocks about 18 months ago. 

“The worst of the shock is behind us with Liberation Day,” said Efstathopoulos, referring to the April 2 US tariff announcement that triggered a global equity rout. “The numbers that were recorded on that day were the worst it can get.”

Fidelity is maintaining its conviction even as investors gear up for the end of the 90-day tariff truce on July 8, when reciprocal levies will take effect if nations fail to reach a trade deal with the US. Tensions in the Middle East may also pose a major test for stock markets, with Trump to decide within two weeks whether to strike Iran as the conflict with Israel escalates.

For now, many of Efstathopoulos’ bets have paid off, and he’s convinced they remain a buy. The MSCI Japan Mid Cap Index has gained more than 4% since April 2, while Germany’s DAX Mid-Cap gauge has risen almost 6%. A similar index of Chinese stocks advanced about 0.5% during that period. 

The money manager has had some exposure to Chinese and Japanese stocks since the second half of last year, while it scooped up German midcaps in March shortly after the government announced a historic spending package. 

“In a world of trade disruption, disruption of globalization, I think it makes sense to focus on more domestic revenue generation,” said Efstathopoulos, who oversees about $3 billion from Singapore.  

German equities should advance because they’re poised to benefit from a landmark shift toward more fiscal spending and concentrated exposure to domestic demand, he said. 

Meanwhile, Japan is undergoing a once-in-a-generation shift with “good inflation” rippling across the economy, and mid-sized companies are likely to benefit most from rising domestic consumption, said Efstathopoulos. 

Fidelity likes Chinese firms due to prospects of further fiscal stimulus and limited risk of losses, thanks in part to factors like state-backed investors swooping into markets to prop up stock prices.

Efstathopoulos helps oversee Fidelity’s global multi-asset growth and income fund that’s returned a cumulative 14.8% in dollar terms over the past three years, according to a company factsheet.

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