(Bloomberg) -- The risk of potential trade tariffs resulting from a Donald Trump US election win has already been priced into shares of major European exporters, according to Barclays strategists.
“Tariff concerns have been a drag on EU equities,” the research team lead by Emmanuel Cau wrote in a note Wednesday. They estimate that a full-blown trade war could result in a high single-digit drag on earnings per share growth.
Such a scenario would leave export-driven economies such as Germany and Italy hardest hit, with sectors such as capital goods, beverages, technology and the automotive industry most at risk, the strategists wrote.
A Goldman Sachs Group Inc. basket of European companies expected to be negatively impacted by US tariffs is down 11% this year, while the pan-European Stoxx 600 Index is up 8.7%.
With bonds slumping and the dollar rising, “investors are incorporating a high probability of a reflationary scenario coming from a Trump win and potential Red sweep at the US election,” the strategists wrote, referring to a scenario in which Republicans hold both the White House and Congress.
While a Trump win risks adding to the pressure on European stocks following a shaky start to the third quarter earnings season, the Barclays strategists note potential for a rebound if Kamala Harris wins. Sectors including clean and renewable energy would stand to benefit, having been impacted by rising odds of a Trump win.
In any event, investors should expect a rise in volatility leading to the election, the strategists said, adding that the vote’s conclusion may usher in a new dynamic for equity markets.
With many traders on the sidelines, “the election could still act as a catalyst for investors to move forward and express more conviction into 2025,” the Barclays team wrote.
--With assistance from Sagarika Jaisinghani.
©2024 Bloomberg L.P.