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CASH IN ON PAYMENTS COMPANIES DURING TARIFF TURBULENCE

Investment firm Stonehage Fleming sought out stocks that it believes can act as a hedge against inflation and recent tariff volatility in the United States, and sees Visa V.N and Mastercard MA.N, among others, as good bets.

Inflation in the United States had just showed signs of slowing when President Trump's never-ending saga of tariffs and no tariffs got markets worried about the potential for renewed price pressures.

As per surveys seen in recent weeks, medium and long-term inflation expectations have jumped, and fears of a recession in the world's biggest economy have dented consumer and investor sentiment alike.

These companies are not as directly exposed to international manufacturing and tariff uncertainties, said Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity fund.

Visa and Mastercard levy "scheme fees" - charges by a card payment system operator for services relating to participation in the card system - that make for a hedge against inflation as well, said Stonehage Fleming.

While consumers tend to slow consumption in an environment of high inflation, they have historically tended to split payments into smaller tranches. That boosts payment volumes, reduces incentives card operators pay to banks and improves network revenues, Stonehage Fleming says.

Lastly, "these companies are global operators, with the weaker dollar in their favor in terms of their non-US business," says Smit.

Back in 2022, when U.S. inflation peaked at 9%, Visa and Mastercard lost 4.3% and 3.3% respectively, largely outperforming the benchmark S&P 500 .SPX that shed more than 19% in the year.

Visa has gained about 5%, while Mastercard has lost more than 1% so far this year, compared with a more than 9% decline in the S&P 500.

Smit also says that American Express AXP.N is not a part of the firm's best picks because of its different business model, that makes membership expensive and its profits lesser.

(Purvi Agarwal)

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