We are not in the 1930s, Credit Suisse says on protectionism

Globalisation may be past its peak but the risk that trade protectionism might get out of hand might be less than some investors think, Credit Suisse said.

The Swiss broker's most recent client survey revealed that protectionism was seen as the biggest risk to global markets, ahead of those posed by China, US rates or European politics.

Yet the strategy team led by Andrew Garthwaite was "somewhat more sanguine on balance" about the potential risks faced by the world economy, identifying sectors such as financials or areas like Continental Europe as "relative winners".

For starters, US president Donald Trump's cabinet had approximately 17 times' more business experience than President Obama's.

That, Garthwaite said, meant there was more hands-on knowlege now in the White House about the inter-connectedness of supply chains and markets.

We are not in the 1930s

Congress also appeared to be against protectionism, he said.

Furthermore, if anything measures such as border adjustment tariffs and the like would hit manufacturing products, which now accounted for just 10% of employment in the States.

Trade retaliataion also looked "unlikely", unlike in the 1930s, Garthwaite said.

Nonetheless, "we may be past a peak in globalisation given that the trade share of GDP is already extremely high at 65%, while rising Chinese wages, automation, 3D printing, and the low oil price make offshoring less attractive," he added.

On winners and losers (relatively speaking): Equities, China and Mexico

He recommended a benchmark weighting on testing companies and underweighting the 'facilitators' of global trade, such as freight forwarding.

US retailers would also be negatively impacted given how 90% of clothing was imported, as would companies with a large number of international suppliers such as IBM.

Equities would also be among the relative losers from protectionism he said, because historically they have tended to de-rate when inflation moved past 3.0%.

Among the "relative winners" were financials on the back of higher bond yields with the latter the result of higher inflation and possibly selling from the BoJ and PBoC.

Continental Europe was another relative winner, as 62.0% of exports were intra-European. Service sectors should also be relatively less impacted.

Lastly, the broker stuck by a small 'overweight' on Global Emerging Markets given narrowing in their current account deficits and then cheap currencies against the US dollar.

"On our scorecard, Mexico and China are the biggest losers from protectionism. We think it is too early to buy Mexico. Our GEM team is overweight China, Brazil, Korea and Indonesia."