Fin-X Pulse - Our Thoughts on Trump Tariffs

Market Update: Navigating Volatility with Strategic Focus

Over the past month, global equity markets have experienced a drawdown due to uncertainties surrounding recent trade policies. Throughout this period, we have consistently communicated our views while maintaining a strategic, fundamentals-driven approach.

Our focus remains on the elements we can control. Our investment process prioritizes long-term strategic considerations and the fundamentals of underlying investments. During periods of market volatility, like the one we’ve seen recently, if the core fundamentals and long-term growth drivers remain robust, we maintain our conviction/positions and may seek opportunities to add to existing or new positions where appropriate.

While recent events have undoubtedly increased volatility, uncertainty, and impacted market sentiment, the foundational principles of our investment approach remain strong.

We actively engage with market participants both domestically and internationally to gather insights and perspectives that help shape our strategies. Recently, we consulted with Global X, an exchange-traded fund provider managing $US99bn of funds, to gain further context on the underlying fundamentals of equities. Their insights align with our view that, despite recent fluctuations, the fundamentals of many equities remain intact, and valuations appear more attractive compared to earlier in the year.

Below, we share some key insights and charts that illustrate this perspective. Charts are supplied by Global X

• Even though sentiment has weakened, strong corporate earnings continues to support market fundamentals

• Share markets correct (i.e. >10% fall) every couple of years, yet history shows that declines often set the stage for strong future returns

·      Trump 2.0 – How worried should we be?

o   US economic growth continues to outpace the G7 and broader global markets

o   Corporate earnings in the US remain stronger than most major regions

o   Despite risks, US fundamental support its position as a market leader

 ·      Growth stocks currently out of favour – yet signals remain mixed

o   There is no clear rotation to defensives

·      No overvaluation signal

o   PEG (Price to earnings growth ratio) remains stable, suggesting valuations are not stretched

o   Earnings growth and rising dividends are expected to drive market upside in 2025

o   Inflation-adjusted returns have been flat, showing no excess gains despite past volatility

·      US large caps are still the dominant driver at attractive valuations

o   Mag 7 earnings contribution remains high, reinforcing large-cap leadership

o   Market remains concentrated, but valuations create selective opportunities

US large caps – Strength matters

o   Large caps maintain balance sheet strength, with lower net debt-to-equity

o   Mag 7’s free cash flow yield stabilises after volatility, reinforcing resilience

o   Strong financials support continued leadership in uncertain markets

Tariff Announcements will continue to impact markets and sentiment.

o   Southeast Asian countries appear worst effected on a global scale

o   A lack of clarity regarding the length of time tariffs will remain in effect

o   Barring retaliation, these levels represent the ceiling according to White House officials

o   However, uncertainty will crimp business investment until a clearer path becomes evident.

Risks & headwinds (“the known knowns, the known unknowns, the unknown unknowns”)

·      The risk of recession in the US and globally has increased

·      The impact of the tariffs may be inflationary

·      The risk of stagflation has also increased

·      Risk of corporate earnings slowing

·      A prolonged period of uncertainty versus a quick outcome as nations respond with their own protectionist policies creating ongoing uncertainty

*not inclusive of 20% tariffs already imposed on China

Conclusion - Staying the Course Amid Market Uncertainty

Experiencing a drawdown in asset values can be challenging, but long-term valuations are ultimately driven by fundamentals. Currently, market sentiment is negative, with both markets and economies adopting a cautious "wait-and-see" approach. The Trump administration’s announcement of reciprocal tariffs (“Liberation Day”) introduces additional uncertainty, and global markets may remain unsettled until greater clarity emerges.

Despite these challenges, the structural integrity of our core investments remains robust. Many of our global assets possess high barriers to entry and exhibit monopoly-like characteristics, reinforcing their long-term potential.

We remain committed to our current strategy, continuing to deploy capital cautiously while awaiting greater certainty before making further investment decisions.

Disclaimer

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