US equities continued to be under pressure in the wake of the US administration's tariffs, announced on Wednesday. We carry more thoughts from wealth managers in Asia, the US and Europe.

Wealth managers are reshaping how they invest after Donald Trump slapped tariffs of at least 10 per cent - and far more in specific cases - on a host of countries, including members of the European Union, Japan, China, the UK, Singapore and nations in Southeast Asia such as Vietnam.

US stock futures weakened further today during the Asian and European sessions; the yield on the US Treasury bond has also slipped below 4 per cent. JP Morgan analysts have (source: Wall Street Journal, April 4) increased expectations of a US recession to 60 per cent.

Investors wiped more than $3.1 trillion off the value of US equities on Thursday, the worst showing since March 2020 at the start of the pandemic.

Trump’s tariffs, which he said are designed to reshore manufacturing business and jobs, are part of a strategy, along with deregulation and domestic tax cuts, that are designed to foster a more “America-First” policy mix. The policies highlight how decades of a process, sometimes dubbed “globalization,” is unravelling. 

Chris Rossbach, chief investment officer at J Stern & Co, the investment house, gave a relatively sanguine take on events of this week. 

“Investors have to accept that uncertainty is what Trump does, but they should think long-term and remember that quality companies will continue to be quality companies and that the laws of economics have not been suspended,” he said in a note.

“President Trump’s policies appear to be driven by clear principles, including that uncertainty is good because it provides negotiation leverage, and that tariffs are positive because they achieve economic realignment and benefits for the US economy,” Rossbach continued. “There are positives from that, but there are also negatives. This uncertainty will continue until it becomes clear that the negatives outweigh the positives, at which point it will stop and it will change. We will still be left with very good companies doing great business and a robust underlying US economy. The valuations of many companies will be at very attractive levels, which is an opportunity for long-term investors focused on quality companies."

Rossbach said there are potential opportunities worth exploring. 

“To quote Warren Buffett: ‘Whether we're talking about stocks or socks, I like buying quality merchandise when it is marked down.’ Our task as long-term investors is not to predict what politicians do but to focus on the fundamentals. This is what guides investment decisions, and we believe that the underlying incentives of President Trump are to deliver a prosperous economy, with a solid job market, lower prices and a stock market that rewards those who put their confidence in it. This means that our interests are aligned.”

Ross Mayfield, investment strategist for Baird Private Wealth Management, said: “Longer term, companies will adjust to the new paradigm and find ways to grow profits. Big shocks to the system have a way of accelerating change, even if it's not their intended effect (e.g. digitalization during Covid-19). If the goal of the tariffs is to level the trade playing field and bring manufacturing capacity back to the US, there is no doubt that artificial intelligence and robotics will play a role, and companies may need to figure that role out sooner rather than later. 
 
“One of the things that didn’t change yesterday is the profit motive inherent to a free enterprise capitalist system. Policy doesn’t change that (case in point, from 1951 to 1964, the top corporate tax rate in the US was 50 per cent or greater, and yet over that time frame, the S&P 500 rose 650 per cent, or 15.5 per cent annually). Companies are alive, and they will adapt," Mayfield said.

Seema Shah, chief global strategist at Principal Asset Management, mused on what the tariffs mean for Europe and China.

Shah said it is likely that another downgrade to the European growth rate is on the cards.

“A 20 per cent blanket tariff [on the EU] now points to a 0.9 percentage point direct drag on growth – with further downside risk if Europe retaliates.

“The inflation impact remains uncertain, but the downside risks to growth suggest the [European Central Bank’s] policy path is relatively straightforward. While recent weeks have seen some hesitation around the need for additional rate cuts, the combination of weaker growth prospects and a stronger euro makes a rate cut at the ECB’s April meeting highly likely. If a recession becomes more probable, multiple additional cuts could follow,” Shah said. 

Moves by Germany, following recent national elections, to ease the “debt brake” and increase spending on defence and infrastructure provides some positive relief for the German and European economy, Shah said. 

Turning to China, Shah said Trump’s imposition of a 54 per cent tariff on the Asian giant is close to the original 60 per cent tariff that President Trump had initially threatened. 

“The 54 per cent is also still larger than most forecasters were expecting. With tariff rates on several other Asian economies rising to levels that will likely tip them into recession (for example, Vietnam has been hit with a nearly 50 per cent tariff), it will be challenging for China to re-route their exports,” Shah said. 

“Additional stimulus from [China] policymakers, both monetary and fiscal, is likely to be announced to offset the tariff impact. 

“The early read is that export headwinds will intensify, weighing more heavily on growth. However, additional stimulus measures are likely to cushion the blow by lifting domestic consumption. Even so, we expect to revise down our 2025 GDP growth forecast for China – shifting from a strong 4.5 per cent to a more modest 4.2 to 4.3 per cent, depending on the size and speed of policy support,” Shah said. 

At Asia-based Tiger Brokers, the firm pondered on what the tariffs and market falls mean for gold. The yellow metal has risen above $3,000 per ounce in recent weeks.
 
“Gold is likely to be seen as a reliable hedge against market volatility, especially amid rising uncertainties under Trump 2.0 administration. The current gold bull run could be prolonged if trade tensions escalate, including longer-than-expected trade renegotiations and a continued cycle of US and retaliatory tariffs,” James Ooi, market strategist, Tiger Brokers, said. 

“Aside from gold, short-duration bonds such as money market funds (MMFs) may see increased inflows, as they tend to have low correlation with equity markets. For instance, US money market fund assets have climbed to nearly $7 trillion, about 46 per cent higher than their Covid-era peak of $4.8 trillion.”

Deutsche Bank said the tariffs will be bad for global growth, including in places such as the European Union and UK, and it is likely that the EU will hit back. 

“We estimate that the increase in US tariffs could knock 0.4 to 0.7 percentage points off EU GDP and 0.3 to 0.6pp off UK GDP. This is the direct effect. There are indirect costs from abroad, including a meaningful increase in recession risk in the US.

“The impact on inflation is ambiguous. Retaliatory tariffs lift inflation, and foreign exchange weakness and supply chain disruption are inflation risks. On the other hand, weaker growth is disinflationary, and the higher tariffs faced by third countries increases the risk of disinflationary trade diversion,” the bank said.