What a difference a few months of President Trump makes.
It was not so long ago that the US had been outperforming markets, had a stronger growth performance trajectory, larger capital inflows, and an appreciating currency.
That picture has now unraveled at speed. A US recession now looks likely, with massive implications globally, as the dollar weakens and the investor appetite for exposure to US equities diminished, despite a pause in tariffs.
“At this point, it does feel like a bit of panic mode in global markets,” said Benoit Anne, senior managing director in the strategy and insights group at MFS Investment Management. “Looking ahead, we are going to need a catalyst to help the dust settle.”
The big concern is we are now heading down the road to a recession. “In order to avoid a recession in the US, the government will have to shift gear and focus on a more growth-supporting policy agenda,” Anne added.
For Sean Peche, portfolio manager at boutique fund management group Ranmore Fund Management, this means it is time for investors to ditch US assets. “For the first time in I don’t know how long, international investors have a reason to sell the US and a reason to buy elsewhere — and not just on valuation,” he said.
“You’ve got political disruption, the potential return of Trump, alienation of allies… now we’re seeing stimulus in Germany and China, and governance reforms in Japan and Korea. That creates real asymmetry,” Peche said.
The risk isn’t just in the market, added Peche – it’s in the concentration of capital. “If you’re 70% allocated to the US and the winds shift, whether it’s tariffs, political volatility or regulatory clampdowns, that’s a lot of sheep trying to leave the same field at once,” he said.
Inevitably some investors are seeking refuge in safe assets. “Volatility, tariffs and uncertainty are re-defining the global investment landscape,” said UBP’s group CIO Michaël Lok. “As the old trade order gives way, heightened risks demand agile risk management and decisive tactical moves. We are positioning portfolios with options strategies, gold and cash to navigate this evolving regime,” he added.
MFS’ Anne also has a solution for investors amongst all the negative noise. “In our view, fixed income remains well positioned in the period ahead as an attractive de-risking asset class,” he said. “We believe the case for being long duration has strengthened considerably.”
On this theme, he added: “Compliments of the current global market stress, the valuation picture has improved considerably in global fixed income,” he said. “While just a few weeks ago, most spreads were in stretched territory, that is no longer the case.”
But Trump and his policies could see unintentional results. “The unintended consequence of Trump’s policies is that it could make the rest of the world great again,” Jacob Mitchell, CIO of Australian asset manager Antipodes Partners.
Comments