Don’t worry about NAFTA, this Canadian portfolio manager says

Trade talks aimed at renegotiating the North American Free Trade Agreement (NAFTA) are heading into their sixth round next week in Montreal, with plenty of concern that US president Donald Trump will at some point pull the plug on the deal.

How would ripping up NAFTA affect industry and the markets here in Canada? The blow would be noticeable but in the end not too significant, says asset manager James Telfser, who claims that no drastic steps are needed one way or the other.

All eyes will be on the penultimate round of trade negotiations next week in Montreal where representatives from Canada, Mexico and the United States will try to bring the NAFTA talks closer to an agreement. Opinions differ on how far apart the sides stand. A Reuters poll of 45 economists showed a wide majority believe a deal will be reached and that the changes to the current regulations will be minimal.

At the same time, reports are saying that the Trump administration is growing impatient with the process and the lack of progress on what it sees as key issues such as the “sunset clause” requiring that the agreement be renewed every five years and Mexican labour conditions, which US negotiators say are dragging down American wages.

On top of that, everyone seems to fear the wild card known as Donald Trump, who has repeatedly threatened to pull his team out of talks, calling NAFTA a “bad joke” and now contending that unless Mexico agrees to pay for the proposed wall between the two countries, the US will abandon talks.

And while losing an agreement with its largest trading partners will undoubtably impact business here in Canada, the blow will be more speed bump than brick wall, says Telfser, partner and portfolio manager at Aventine Asset Management and manager of the Aventine Canadian Equity Fund. Telfser insists that, on the one hand, a lot of companies that he follows have already been making moves in anticipation of NAFTA talks failing, by upping their investments in the United States and building factories and plants in the US. On the other hand, good businesses are good businesses, in the end, and will likely weather the storm regardless of which way Trump’s winds might blow.

“We made a lot of money for our investors last year by not paying attention to those things like the news and the media, the things that strategists are paying attention to [but] don’t affect the underlying story of the businesses that we own,” says Telfser, in conversation with BNN. “We really keep our head down and try to own good businesses, ones that have their own sets of catalysts irrespective of the market.”

“If we’ve learnt anything in the last few years it’s that a lot of these large political events, while they seem like a really big deal, once you get to the other side of it, maybe there’s a knee-jerk reaction, but you don’t panic,” he said. “That could very well be the case with NAFTA. Our base case is to do nothing at this point.”

Telfser claims that his firm has met with the CEOs of companies his firm holds and none of them are particularly worried about what ultimately happens if NAFTA fails. “They say it’ll be a hiccup in their business that’ll slow down the logistics of their business but that they’ll get around it,” he says. “There’s trade agreements to fall back on [and] a lot of these companies have already built into the US.”

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