On 2 April, United States (US) president Donald Trump unveiled a sweeping new tariff initiative, describing it as a “historic reclaiming of America’s economic independence”.
Announcing the highest trade tariffs in more than a century, the president insisted the measures would “restore America’s wealth” and rebalance years of perceived economic disadvantage in global trade.
Yet, instead of shoring up investor confidence, the announcement sent shockwaves across financial markets, triggering a global sell-off.
Within days, Standard and Poor’s 500 had plunged nearly 10%, and volatility spiked across asset classes, as investors and policymakers scrambled to interpret the implications.
Globally, the move has forced a rethink of investment strategies.
Export-driven economies, especially those heavily reliant on trade with the US, are expected to feel the brunt of the impact. Although the US economy is large and somewhat shielded by its relatively small export-to-gross domestic product (GDP) ratio, its trading partners are more exposed.
European and Asian manufacturing hubs, for instance, face declining export orders, supply chain disruptions, and rising production costs.
These dynamics are likely to erode profitability and suppress capital expenditure plans, especially in industries tied to global value chains.
Inflation expectations are also on the rise. As tariffs lift the cost of imported goods, central banks may be forced to revise their monetary policy stances.
The US Federal Reserve is expected to respond with at least one rate cut in 2025, primarily to address market dislocation rather than a sharp drop in demand.
Other central banks may find themselves in a dilemma: whether to maintain accommodative policy to support growth or act pre-emptively against inflation.
In private markets, the impact of the tariffs has been more nuanced.
According to investment professionals at Franklin Templeton and its affiliates, the initial optimism that followed the 2024 US elections has quickly been tempered.
Uncertainty around trade policy has complicated pricing models, particularly in private equity and real estate, where investment horizons are longer and exposure to macroeconomic shifts is more pronounced.
Benefit Street Partners managing director Blair Faulstich says the disruption in public markets is already creating pockets of opportunity in private credit.
As traditional banks become more risk-averse, especially in sectors exposed to trade volatility, private capital can fill the financing gap.
Leveraged buyouts, infrastructure projects, and distressed debt transactions are expected to gain traction as investors seek both yield and strategic entry points.
Moreover, some investors are viewing the current dislocation as a buying opportunity. In fixed income, short-duration and inflation-protected bonds are gaining favour.
High-yield instruments with limited exposure to global supply chains are also drawing attention, especially those linked to defensive sectors such as utilities, healthcare, and telecommunications.
The equity markets have been the most visibly affected.
The swift and sharp sell-off that followed Trump’s announcement underscored how unprepared investors were for such a radical policy shift.
Many had assumed that Trump’s protectionist rhetoric would soften after the election. Reality has proven otherwise.
Chief investment officer at ClearBridge Investments Scott Glasser highlights that while short-term panic is understandable, long-term investors should avoid reactionary decisions.
He advocates a diversified portfolio, with an emphasis on high-quality companies, those with solid balance sheets, strong cash flows, and consistent dividend payouts.
Sectors traditionally viewed as ‘defensive’, such as consumer staples, healthcare, and utilities are likely to outperform in this uncertain climate.
Dividend-paying international stocks are also emerging as safe havens.
With the US dollar weakening due to global scepticism and renewed eurozone stimulus, foreign equity valuations are looking more attractive.
In this environment, global diversification is not just a luxury, it is a necessity. – The Brief
- Trophy Shapanga is the managing director of Lebela Fund Managers.
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