Monthly House View - April 2025 - Download here 

Our March editorial highlighted the twin peaks of new highs in the United States (US) stock market and gold prices. Less than two months later, only gold continues its ascent as the world abruptly entered a period of global economic realignment, marked by threats of tariffs escalating into a global trade war—essentially, the US versus the rest of the world. This was not the scenario most investors, including ourselves, envisioned for this year. 

UNPRECEDENTED MARKET VOLATILITY 

Since February, the US stock market has experienced significant volatility, losing nearly 20% from its highs. In a stunning turn of events, 5.6 trillion dollars in market capitalisation was wiped out in just three trading sessions following 2 April, dubbed “Liberation Day”— a figure equivalent to the combined market cap of Apple and Nvidia. Upon news of a 90-day tariff suspension, the S&P 500 recorded its largest daily gain since October 2008, marking its third-largest single session increase since 1990. The Trump administration’s unpredictable policies will keep us guessing. Given this uncertainty, a more defensive approach in portfolio management seems prudent for now, as a clear macro-economic scenario lacks confidence today. Moments of opportunity will emerge, though risks may be rewarded later in the year once we navigate the peak of uncertainties surrounding the recession threat.

BUSINESS IS A CONFIDENCE GAME 

The risks of a US and global recession are growing, although we are not currently forecasting a US recession. Hard data remains robust, while soft data paints a weaker picture but has not been a reliable indicator of economic growth in recent years. The US consumer, vital to the economy, is in a solid position thanks to healthy balance sheets, the positive wealth effect, resilient employment and strong real wages. However, policy uncertainties and rapid u-turns do not inspire confidence. The upcoming earnings season will be crucial in understanding how businesses are adapting or feeling the pressure to delay hiring and investments. 

Voices in Corporate America are now becoming more vocal. In his annual shareholder letter, JP Morgan CEO Jamie Dimon offered a nuanced view on Trump’s tariff policy, stating, “America First is fine, as long as it doesn’t end up being America alone”. Billionaire investor Stanley Druckenmiller expressed his opposition to tariffs above 10% on social media, distancing himself from current policies. Even Citadel’s Ken Griffin, a Republican megadonor, criticised tariffs as a “huge policy mistake”. 

Were these voices influential in Trump’s decision to backtrack a week after “Liberation Day“? The fall of the S&P 500 below 5’000 and the sudden spike of the US 10-year Treasury yield to 4.5% were likely not part of the original plan, if there was one. Trump, through his Treasury Secretary Scott Bessent, appears acutely aware of the US government’s borrowing costs. With 29 trillion dollars in outstanding Treasuries and 9.6 trillion dollars needing refinancing this year, higher interest costs are unsustainable. 

The US has enjoyed many years of “US exceptionalism”, which reversed in less than two months. While Europe and China were deemed uninvestable, the US seemed the top choice for capital. Thinking that America is no longer investable is shortsighted. We should not confuse Corporate America — synonymous with technological innovation, superior productivity growth, higher capital spending, entrepreneurial spirit, and profit generation — with the current administration. Admittedly, some short-term economic damage is inevitable, but in the medium to long term, human nature will adapt and find solutions. 

In this month’s edition, our Chief Strategist for Asia shares his views on how Asia can withstand US tariffs. China has been “decoupling” from the US for over a decade, with its trade with the US as a percentage of nominal gross domestic product (GDP) declining from 6.2% in 2010 to 3.7% in 2024. Concurrently, China has become self-sufficient in many technologies, positioning it to better offset punitive US tariffs. We now have 90 days to reshape the world trade order.

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_{Monthly House View, 17.04.2025. - Excerpt of the Editorial}