The Tell: How investors can protect against a trade war — in one sentence

Worries are persisting this week about a potential global trade war, helped by a report that the Trump administration may impose up to $60 billion in tariffs on Chinese goods.

That news tied to the world’s second-biggest economy comes after President Donald Trump last week moved ahead with tariffs on steel and aluminum imports. He exempted Canada and Mexico, but his decision triggered the resignation of pro-trade adviser Gary Cohn.

So what should investors worried about a trade war do?

Mark Haefele, the global chief investment officer for UBS Wealth Management, has offered this game plan in a 55-word sentence that came at the end of a three-page note dated Monday:

“Investors who wish to protect their portfolios against the risk case of a full-scale trade war should ensure they are not overexposed to export-oriented equity regions (Germany, Japan) or sectors (machinery, car manufacturing), and ensure adequate global diversification, including assets in the U.S., where some sectors could benefit directly from the tariffs (e.g. steel manufacturers).”

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“A major global trade war is a risk, but unlikely, and there is enough positive news on the global economy to keep us overweight global equities,” Haefele also said in the note, meaning his shop recommends tilting portfolios toward stocks.

Global stocks — going by the $12 billion Vanguard Total World Stock ETF VT, -0.69%  — are up 2.4% so far in 2018, and they’ve advanced 17% over the past 12 months.

Check out: One way to play Trump’s tariffs — buy steel stocks and ‘enjoy the heat’

And read: The big-name stocks in the crosshairs as trade-war worries reboot

“Overall, the potential risk from an escalation in trade frictions is another reminder of the benefits of maintaining a well-diversified investment portfolio,” Haefele added.

The European Union has pushed back against the U.S. tariff plan, with one official saying, “We can also do stupid,” while Beijing has threatened a “justified and necessary response” if a trade war breaks out.

Don’t miss: Go big on stocks as Trump has 1 huge reason not to launch a trade war

During last month’s selloff for global stocks, Haefele said markets had been “overdue” for a pullback, but the drop had become “overdone.”

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