By Renzi Thirumalai
"There are decades where nothing happens, and there are weeks where decades happen."
~Vladimir Lenin
As investment professionals our job is largely to distinguish the signals from the noise, a challenging but for the most part, manageable endeavour. When Donald Trump took office on 20 January 2025, (to quote Richmond Fed President Tom Barkin) a dense fog descended over global markets - and indeed global politics.
Geopolitical fracturing, seemingly aimed at recasting the world order in greater favour of the United States (US), is resulting in a global trend of divergence - in both monetary and fiscal policy. The implication of this policy framework by the US is that it creates heightened uncertainty, which constrains investment. A key variable has been the response mechanism from affected nations, not all of whom have acquiesced to the US president's demands - and therein lies escalation risk with respect to both policy and politics.
Trump has portrayed an inflammatory yet accommodating stance on tariffs to date, leading many to think they were pure negotiating tactics and that perhaps the tariff dog was all bark and no bite. On 2 April 2025 it became clear that the US president's stance on tariffs was firm - very firm. While he might still be open to a measure of negotiation, the sheer magnitude and breadth of tariffs that were announced rank among the most significant in the last hundred years. The implications are hard to quantify, but too large to ignore. Tariffs are, by their nature, a blunt instrument which could aim to protect domestic industries, generate revenue, correct trade imbalances or protect national security. The efficacy of tariffs in pursuit of these endeavours is a complicated dynamic worthy of discussion, but beyond the scope of this note.
As the dense fog began to descend earlier this year, we advocated a more cautious approach to both local and offshore risk assets in favour of a more defensive tilt, highlighting that certain assets were looking toppish from a valuation perspective - particularly US equities and local bonds. We now undoubtedly have better entry points into risk assets as well as local bonds, while more defensive asset classes have performed very well on a relative basis.
Global turmoil aside, the ongoing instability in our Government of National Unity (GNU) is further affecting markets and risk appetite. We would be relieved to see a sensible resolution sooner rather than later as such idiosyncratic risk amidst the current global climate could exacerbate a downturn in local asset prices.
In times of such market dislocation, it is important to stay the course. In dense fog, conviction levels reduce, and forecast ranges widen. And while there will be value traps, there are opportunities to be found in such environments.
"In the midst of every crisis, lies great opportunity."
~Albert Einstein
