Written by Ashwin Gurung
Last week, US President Donald Trump unveiled a series of tariffs targeting countries around the world which would collectively take tariff rates back to levels not seen since the 1930’s. He believes these measures will encourage American consumers to favour domestically produced goods, re-shore manufacturing jobs and raise revenue to fund his proposed tax cuts, thereby supporting local industries and growth. A baseline tariff of 10% will be applied to all imports into the US, excluding Canada and Mexico. Many other nations, however, will face significantly higher duties under a “reciprocal” tariff system, where the US claims to be matching the tariffs imposed by its trading partners on American products. In reality, these “reciprocal” rates were determined via simply calculating the trade deficit with each country and assuming the US is somehow being disadvantaged by that.
China responded by announcing retaliatory tariffs of 34% on US imports, while several other countries initiated plans for negotiations with the US. Although the full economic impact of these measures remains uncertain, they have undeniably heightened fears of global economic growth slowdown and higher inflation. This has further mounted pressure on the Federal Reserve (Fed) to lower US interest rates to support the economy caused by worsening trade tensions. However, on Friday, Fed Chair Jerome Powell acknowledged and reiterated that the effects of these tariffs remain uncertain and that the Fed will wait for more clarity before adjusting interest rates. Similarly, the Bank of Japan and the European Central Bank are also seeking clarity and are expected to delay any changes to their monetary policies.
Uncertainty quickly spread through financial markets, leading to a sharp fall in global equities. Last week alone, the MSCI All Country World Index fell -7.8% in GBP terms, with the US market being one of the hardest hit. For UK investors, the losses were made worse by a falling US dollar, something we don’t often see during market stress, as the dollar usually strengthens. The S&P 500 declined -9.0%, while the more technology-focused Nasdaq 100 dropped even further, falling -9.7%, both in GBP terms. Similarly, small and mid-cap companies, as measured by the Russell 2000 Index, which are more economically sensitive, fell -9.6% in GBP terms.
The impact was felt across the globe, with the FTSE All-Share Index and MSCI Europe ex-UK Index dropping by -7.0% and -6.9%, respectively, while MSCI Japan Index and MSCI China Index fell -7.3% and -3.0%, respectively, all in GBP terms. The unexpected 24% reciprocal tariff on Japan particularly affected the country’s export-driven index. However, the Japanese yen, often seen as a safe-haven currency, strengthened, helping to limit losses for UK investors.
As painful as it was for global equity markets, it was a positive week for our diversifying asset classes, particularly, Absolute Return, high-quality global Fixed Income and certain Real Asset strategies, which undoubtedly reinforced the importance of maintaining diversification across asset classes during these turbulent times.
The Bloomberg Global Aggregate Index of global bonds returned +1.1% in GBP-hedged terms, while our exposure to US longer-dated bonds, which are more sensitive to interest rates, returned +4.5%, as expectations for interest rate cuts in 2025 increased. Similarly, infrastructure-related assets, such as utilities, which are less susceptible to business cycles, remained resilient. Adding to the diversification was our selection of absolute return managers, particularly the Fulcrum Thematic Equity Market Neutral Fund, which returned +3.3% over the week in GBP terms and continues to deliver positive returns independent of market direction.
While short-term volatility can be unsettling, our globally diversified approach across asset classes, market caps, and investment styles continues to provide a strong foundation for navigating these turbulent times. By maintaining this exposure, we are better positioned to limit downside risks and capture opportunities as they arise.
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 7th April 2025.
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