Ellen Ward

The World In A Week - Tariff Man redraws global capital flows

Written by Cormac Nevin

Markets endured a broad-based sell-off last week, with the MSCI All Country World Index of global equities returning -1.7% in GBP terms. The sell-off was concentrated in the US market in general, and large-cap US technology names in particular. The UK market was a source of stability in equities, rallying +0.2%, while global investment grade bonds also returned a positive +0.1% in GBP hedged terms. What has been unique about the challenges faced by the US equity market this year has been that it has been accompanied by a concurrent weakening in the US Dollar, meaning losses are exacerbated for GBP investors. This is relatively unusual in recent years, as we often see the US Dollar rallying in times of stress.

One interesting aspect of markets this year has been that the second coming of a President initially viewed as good for US stocks (and capital markets more broadly) appears to be driving international investors away from these assets as he re-aligns global relationships at a far deeper and faster pace than his first presidency. Investment in US assets by default has, over recent decades, become almost hard-wired into everything from global capital markets to personal investment plans. Today this is overwhelmingly done via the unthinking and very basic algorithm that is “passive” investment. If we look at one of the most popular LifeStrategy ranges in the UK, running £43bn in assets, they unthinkingly default 52% of every Pound they receive for equity allocation to the US market (in their range for European investors it is as high as 64%). This is also done blindly at market cap weights, meaning exposures are now very concentrated in large-cap tech stocks -an interesting outcome for products that are marketed as diversified investment solutions!

Governments in the UK, Europe and across the globe are increasingly keen to see those mechanical investment flows stay within their borders and indeed employed to fund re-armament or other infrastructure projects at home. One of the most consequential (if unintended) tariffs Trump enacts might be one on the US stock market. While the US equity market has been a fantastic source of returns for investors in recent decades, we think that a broad-based investment allocation framework remains very well suited to realising investment goals in the current climate.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 31^st March 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - No surprises

Written by Dominic Williams

Overall, markets enjoyed a positive week, with the MSCI World Index gaining +0.8% in GBP terms, boosted by value stocks, which outperformed their growth counterparts over the week. The main focus was on interest rate decisions from three major central banks, all of which delivered outcomes in line with market expectations.

The week began with the Bank of Japan, which voted to maintain interest rates at 0.5%, a 17-year high, meeting consensus forecasts. The central bank has been gradually raising rates over the past year in response to rising inflation, while also working to normalise monetary policy after decades of deflationary pressure. The decision to hold rates was largely driven by ongoing uncertainty around the US administration’s evolving trade policies, particularly concerning tariffs. As Japan is a heavily export-oriented economy, any tariff-related developments could have significant implications. Market reaction to the interest rate decision was muted. However, Japanese equities performed strongly, with the MSCI Japan Index rising +3.2%, supported by gains in value stocks, the MSCI Japan Value Index rose +4.2%, both in GBP terms.

Later that day, the US Federal Reserve (Fed) also opted to leave interest rates unchanged at 4.5%, again aligning with market expectations. However, attention quickly shifted to Fed Chair Jerome Powell’s comments and the updated economic projections. The Fed now expects US GDP growth in 2025 to be 1.7%, down from the previous forecast of 2.1%. Core inflation is projected to remain elevated at 2.8%, above the Fed’s 2% target. Much of this revision is attributed to the anticipated impact of new tariffs, which are expected to push inflation higher while dampening growth. However, as we’ve noted previously, the real-world effects of these tariffs remain highly uncertain.

Despite these cautious projections, US markets posted gains, with the S&P 500 rising +0.7% over the week. Notably, most of the gains were concentrated in value and smaller capitalisation stocks. The Russell 1000 Value Index increased by +1.2% while the Russell 2000 (small-cap index) rose by +0.8%, both in GBP terms.

On Thursday, the Bank of England also held its base rate steady at 4.5%, as widely expected. The Bank indicated it remains open to potential rate cuts later in the year, as it attempts to strike a delicate balance between curbing elevated inflation and supporting an economy showing signs of weakening. In line with the Fed, the Bank of England revised down its growth forecast for 2025 from 1.5% to 0.75%. Markets remained relatively neutral, with the FTSE All Share rising by a modest +0.1%. However, UK value stocks contributed most positively, with the MSCI UK Value Index rising +1.0%.

In continental Europe, Germany’s newly appointed Chancellor, Friedrich Merz, unveiled a significant €1 trillion investment package in defence and infrastructure. This ambitious programme will be funded by a relaxation of Germany’s traditionally strict fiscal rules, marking a notable policy shift. The initiative is expected to boost the country’s defence readiness, stimulate economic activity, and support job creation in Europe’s largest economy, which has suffered from sluggish or negative growth in recent years. However, the overall European market was little changed by this announcement, the MSCI Europe ex-UK Index rose +0.2% over the week in GBP terms.

China bucked the trend seen across most markets, with the MSCI China Index posting negative returns of -1.6% in GBP terms. This marks a reversal from the performance year to date, where China had been one of the stronger performers. Within Emerging Markets, India saw a turnaround in fortunes, with the MSCI India Index gaining +6.6%, in GBP terms following negative performance year to date.

These developments highlight the importance of maintaining a well-diversified portfolio across regions and investment styles. As different areas come in and out of favour, diversification remains key to capturing opportunities and mitigating risks in a changing macroeconomic environment.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 24th March 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - Pricing in the tariffs

Written by Millan Chauhan

We saw a continued sell-off in global equities last week, which was driven by weaker performance from US Equities. The MSCI ACWI index declined -1.8% in GBP terms, largely caused by fears of a growth slowdown following President Trump’s erratic trade policies. After the closing bell last Thursday, the S&P 500 entered correction territory, which is defined as a 10% decline in the value of an index from its peak. This was the seventh fastest correction in history for the S&P 500 index. The sentiment towards the US has weakened and investors have grown increasingly concerned that Trump’s aggressive and somewhat unpredictable trade agenda will impact the US’ forward economic growth expectations and has amplified recessionary fears. Tariffs have been one of Trump’s major policy objectives and he has imposed a sweeping 25% tariff on all steel and aluminium imported into the US. This policy is aimed at supporting the US manufacturing sector but, by bumping up the price of imports, this could initially lead to a resurgence in inflation and could increase the prices of a broad range of consumer and industrial goods. In addition, Trump threatened to impose a 200% retaliatory tariff on alcohol imports from the EU.

Elsewhere in the US, we did see a key inflation measure, the Consumer Price Index (CPI) cool slightly to 2.8% on a year-over-year basis, which was slightly below expectations. On a year-to-date basis, the S&P 500 Index of US Equities has declined -6.8% in GBP terms whereas other equity asset classes such as UK Equities, Japanese Equities and European Equities have held up much better.

At the same time, we have seen strong performance from global listed infrastructure assets and commodities. The S&P Global Infrastructure Index rose by +1.6% last week and is an exposure with embedded inflation linkage via exposure to regulated utilities. Last week, the Bloomberg Commodity Index also returned +0.2% and is a gentle reminder why we believe diversification across regional equities, asset classes and investment styles is critical to your clients’ portfolios.

European equities, as measured by the MSCI Europe ex-UK Index, fell -1.3% in GBP terms over the week but remains up double digits year-to-date.  European banks have performed well and, more recently, we have also seen European defence companies such as Rheinmetall, Leonardo and Thales rise sharply following the EU’s commitment last week to boost its defence spending by €800 billion. This commitment is in response to supporting Ukraine but also is aimed at boosting Europe’s military capabilities, should the US not support Europe. However, overall, we have yet to see European profit forecasts accelerate, in fact they have come down a bit this year. As a result, the recent market appreciation in Europe has only served to make the market more expensive, already trading above its historical average levels.

Last week, the MSCI China index fell marginally by -0.1%, but we saw Chinese markets react positively to Beijing’s promise of new measures aimed at supporting consumption. Consumption within China has been very weak for some time, with consumer prices dropping in February by -0.7% on a year-over-year basis. This also marked the 25th month of Chinese CPI inflation being below 1% and was the largest fall in consumer prices for 13 months. However, the emergence of DeepSeek has led to an uptick in Chinese technology earnings expectations, and the region has been one of the better-performing regional equity asset classes this year, returning +16.5% in GBP terms.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 17th March 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - Tariffs, reversals, and turnarounds

Written by Shane Balkham

Last week, the US imposed additional tariffs that could increase the effective average tariff rate on all imports into the country. Before the Trump administration returned to power, the average tariff rate was around 2.7%, now after the proposed increases it could be between 6.9% to 8.4%. However, within 48 hours Trump had reversed course and indicated that goods that are exempt from tariffs under the United States Mexico Canada Agreement (USMCA) would be given another 30-day reprieve. This is the same agreement that Trump himself orchestrated in his first term as President.

Implementing tariffs, then raising tariffs, before walking back on those threats, creates uncertainty. As the pandemic showed, supply chain disruptions can create significant growth problems. This has been weighting negatively on the US stock market. Last week the S&P 500 fell -4.1% in GBP terms and year-to-date the index is down -5.0%.

While China is imposing retaliatory tariffs of its own, China has set a 5% GDP growth target for 2025 and raised the fiscal deficit goal to 4% of GDP. The annual inflation target has been lowered to 2%, the lowest since 2003, as the country grapples with deflationary pressures. Equity markets reacted positively to these announcements, helping China deliver the strongest gains last week. However, the latest annual inflation rate of -0.7%, which fell short of market expectations, underscores the persistent deflationary pressures and casts doubts on China’s ability to achieve its targeted growth.

Leading the way is Europe, with Germany’s new government announcing plans to increase investment. After years of budget cuts, Germany is now adopting an attitude of whatever-it-takes and breaking chains of historical austerity in favour of a significant overhaul of infrastructure and defence spending. The fiscal pivot by Germany could represent a watershed moment for Europe. At the heart of this transformation is the historic reform of Germany’s budgetary rules to allow defence spending above 1% of GDP to be excluded from the country’s rigid debt-brake mechanism¹. It is a clear response to growing geopolitical instability and a commitment to military preparedness.

Alongside the defence spend, there is a €500 billion fund for infrastructure spending. The fund will channel investment into transport, energy networks, and housing over the next decade, hopefully laying the foundations for a new cycle of economic expansion. After years of sluggish growth, Germany is now looking to set itself on the path to recovery. The MSCI Europe ex-UK index rose +2.1% in GBP terms last week and is up +13.0% for the year to date.

The military commitments will be welcome news to Ukraine, who suffered without the aid of the US, as the conflict intensified with Russia seizing back territory in the Kursk region. Ukraine had hoped to use the control of the Kursk region as leverage in negotiations with Russia. President Zelenskyy will be in Saudi Arabia this week in crucial talks that are aimed at persuading the US to resume military support.

This year has clearly demonstrated the importance of global diversification. While we still see multiple attractive pockets of opportunity, the geopolitical and economic landscape is uncertain and ensuring that you have an appropriately diversified portfolio, across geographies and asset classes, is as important as always.

¹In Germany the federal government and the 16 states are obliged to balance its books and are prohibited from taking out extra loans. No other G7 country has such strict limits on new borrowing. The rules were introduced in 2009 as a reaction to the Global Financial Crisis, to act as a brake to financial capacity and hopefully avoid a repeat of the Global Financial Crisis.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 10th March 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - A weaker outlook led to market corrections

Written by Ilaria Massei

The economic landscape has become increasingly complex in recent weeks, leaving investors with the challenging task of navigating ongoing uncertainties. Equity markets ended the week in negative territory, with the MSCI All Country World Index closing down -0.9% in Sterling terms. In contrast, fixed income performed positively, with the Bloomberg Global Aggregate index of global bonds gaining +0.8% in Sterling terms, as the asset class benefited from heightened uncertainty and a shift towards a more risk-averse sentiment among investors.

US markets are undergoing a sustained correction, with the S&P 500 recording another negative week, down -0.6% in Sterling terms. A significant factor influencing this was Nvidia’s sharp 8% decline in a single day, as its seemingly stellar earnings report failed to alleviate growing investor concerns over a potential slowdown in AI-related spending and questions surrounding long-term profitability.

US Treasury yields fell last week amid renewed concerns about the sustainability of medium-term growth, driven by declining consumer confidence. The largest rallies were seen in bonds with longer-term maturities, and as bond prices rise inversely to yields, the Bloomberg US Treasury 20+ Years Index posted gains, up +3.2% for the week. Additionally, the Federal Reserve Bank of Atlanta’s GDP forecasting model has predicted a decline in US GDP for Q1 2025, highlighting once again how markets can behave contrary to conventional wisdom as the narrative of US exceptionalism loses momentum. This was driven by the “net exports” component of the GDP calculation as imports surged to try to front-run tariffs.

After a strong start to 2025, China gave back some of its gains, with the MSCI China posting a -4.0% return in GBP terms last week. This decline was influenced by the imposition of an additional 10% tariff on Chinese products by the US, alongside efforts to persuade other countries to adopt a similar stance. However, innovation remains a bright spot for China, with Xiaomi’s new electric vehicle selling out its initial 10,000-unit run in just 10 minutes, signalling robust demand and a renewed indication of the country’s strength not only as a producer but also as a leading adopter of electric vehicles.

In Europe and the UK, equity markets are experiencing a renewed sense of confidence. The MSCI Europe ex-UK rose by +0.2%, while the FTSE All Share gained +1.4%, both in Sterling terms. Both regions are becoming increasingly relevant in the ongoing Russia-Ukraine peace talks, with UK Prime Minister Keir Starmer committing to raise defence spending to 2.5% of national income by 2027. On a more micro level, the Nationwide House Price Index in the UK rose by 3.9% year-on-year in February 2025, exceeding expectations of 3.3%. Housing market activity has remained resilient despite ongoing affordability challenges due to elevated interest rates. In Europe, the disinflationary trend continues, with year-on-year inflation at 2.5% in January, in line with expectations, and the region is benefiting from positive flows that are contributing to its solid performance year-to-date.

The economic landscape has undoubtedly become more complex, and in this environment, concentrating risk in a single area exposes investors to the potential for sharp corrections. We believe that maintaining a globally diversified portfolio offers the best protection against such uncertainties.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 3rd March 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - Beware the perils of conventional wisdom

Written by Chris Ayton

Last week was generally a weak one for equity markets with the MSCI All Country World Index down -1.2% in GBP terms. The FTSE All Share Index was down -0.7%, S&P 500 Index down -1.8% and MSCI Europe ex-UK down -0.3%, all in GBP terms. MSCI Japan was also down in local currency but strength in the Yen meant the market was still up +0.8% when translated into Sterling terms. The other bright spot over the week was Emerging Markets which rose +1.8%, boosted by continued strength in MSCI China which was up +3.7% over the week in GBP terms.

You may recall as we entered the year, the conventional wisdom was that the arrival of Donald Trump in the White House brought with it the prospect of widespread tariffs, lower US taxes, higher government spending, a stronger US Dollar and that as a result US equities, and in particular tech stocks, would continue to drive markets higher. Europe and China were expected to be particularly hard hit by Trump’s attempts to reassert US dominance in global trade. We are inherently cautious about conventional wisdom in markets as it has a terrible track record.

Despite the announcement of tariffs that will impact exports from Europe and China, these have been two of the strongest stock markets year-to-date. Despite weak economic data and relatively mediocre earnings growth, MSCI Europe ex-UK is up +10.6% so far this year, partially driven by hopes of a resolution in Ukraine. The German Dax Index is enjoying its second-best start to a year since German reunification. MSCI China is up +16.9% in 2025 so far, as supportive government policy and milder-than-expected tariffs have boosted investor sentiment. Conversely, despite a robust economy in the US, the S&P 500 Index is only up +1.5% in 2025. Despite the UK’s ongoing economic challenges, even the FTSE All-Share Index is up +5.4% year-to-date and Sterling has appreciated against the US Dollar. This reliable divergence between conventional wisdom and actual stock market returns is why we continue to avoid making bold market calls based on politics and retain significant global diversification in all of our portfolios at all times.

In domestic news, there was a positive surprise as UK retail sales grew 1.7% in January, significantly higher than the 0.3% growth expected by economists, with the data boosted by a rebound in spending at food retailers. However, it was not all good news as, despite record income tax and capital gains receipts, the UK’s public finances delivered a lower-than-expected surplus in January. It was still the largest budget surplus since 1993 but means the UK Chancellor is increasingly at risk of breaching her rules on budget responsibility. With other data releases last week showing annual wage growth accelerating to 5.9% and inflation rising to a 10-month high of 3%, the market interpreted this as meaning an increasingly gradual approach to cutting UK interest rates. As a result, UK gilts as measured by the Bloomberg Sterling Aggregate Index were down -0.6% last week. Our own bond portfolios have no dedicated UK bond exposure but remain more globally oriented, with distinct allocations to attractive pockets of opportunity like Emerging Market bonds that have performed well in 2025 so far.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 24^th February 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward

The World In A Week - “America has no permanent friends or enemies, only interests”

Written by Cormac Nevin

Markets appeared relatively quiet last week, particularly from the vantage point of a GBP-based investor. The MSCI All Country World Index of global stocks rose +1.4% in local currency terms, but only +0.3% in Pound Sterling terms as GBP rose against other global currencies due to stronger than anticipated (but still weak) economic growth being reported. Bonds took a bit of a round trip last week, the US 10-Year bond yield jumped on Wednesday when the consumer price index measure of inflation came in a little hotter than expected. However, this jump was more than reversed on Thursday when the producer price index showed much better data. It appears the disinflation process remains on track in the US, and bond yields finished the week lower than where they started meaning the price of bonds increased.

What was perhaps more eventful last week was the geopolitical spectacle emanating from the Munich Security Conference. JD Vance, the new US Vice President, delivered a speech which provoked an indignant response from many European politicians. He made it clear that the new US administration has far less patience for guaranteeing the security of Europe than in past decades and even went so far as to criticise forces which he viewed as the “enemy within” many European nation-states. It appears the world is moving toward a dynamic whereby countries pursue their own self-interest more rapaciously. As the relatively wealthier, more innovative and militarily powerful member of the Western Alliance, the US seems to want to flex these muscles.

Politics aside, something that jumps out from a long-term study of markets and asset classes over the past 150 years is the degree to which sufficient geographic and style diversification provides the best probability of navigating a changing geopolitical landscape. The best way to achieve consistent returns to build & preserve wealth is to build portfolios which are resilient to a range of outcomes and with exposure to opportunities that are not concentrated in one geography. A globally diversified portfolio would have offered a great deal of aid to investors in managing through events as different as the Russian Revolution, the two World Wars, the 1970s inflation shock or the 2000s tech blow-up*. Perhaps this is particularly pertinent at this point in time, when many portfolios are heavily concentrated in rather expensive US assets.

*Source: Saphier, M., Karniol-Tambour, K. & Margolis, P, (February 2019) - Geographic Diversification Can Be a Lifesaver, Yet Most Portfolios Are Highly Geographically Concentrated. [Report]  

Any opinions stated are honestly held but are not guaranteed and should not be relied upon. 

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products. 

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments. 

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 17th February 2025.

© 2025 YOU Asset Management. All rights reserved.

by Ellen Ward