Monthly house view | April 2025

Context

We live in extraordinary times. President Trump’s sweeping trade tariffs, announced on 2 April, have dealt a major shock to the global economy, challenging the international trade system as we know it. While followed by a stunning U-turn on 9 April, uncertainty is likely to linger. Business, consumer and investor sentiment has deteriorated and the risk of a recession in the US and beyond has increased. This is likely to negatively impact risky assets, and US equities in particular. Historical comparison shows that, in the event of a US recession,there will be no ‘decoupling’, and other regions will be hit too.

The tariff announcements add to an already complex policy mix in the US, where job cuts by the new Department of Government Efficiency (DOGE) and a tighter immigration policy were already weighing on the near-term outlook. Though deregulation and tax cuts may help in time, the immediate result of the US policy mix is a spike in global political uncertainty. Central banks may yet be forced to ride to the rescue and cut interest rates below the neutral level – at which policy is neither expansionary nor contractionary.

Tectonic shifts

The tariffs reinforce a tectonic shift underway in the global economy. The post-war architecture – under which the US delivered economic stability, security guarantees and superior returns in exchange for foreign capital – is faltering as US policies undermine trust in the world’s largest economy. Given the large accumulated foreign holdings of US assets, capital repatriation from the US is a growing risk. At the same time, Germany’s new readiness to engage in fiscal spending is a potential ‘game changer’ moment that could spill over across Europe, where lending growth and easing monetary policy are supporting a broader structural revival. And in China, innovation has disrupted markets such that Chinese tech stocks now appear more competitive against their US peers, though Chinese companies do face the challenge of particularly high US tariffs.

Investment implications

In turbulent times, it pay to assess the big picture and remain composed. Our core positioning is crucial for portfolio resilience and is set to seize on the opportunities we expect our base case scenario will present. Our convictions around specific markets and segments should enable investors to generate additional value. Moreover, retaining some flexibility gives investors scope to react to unexpected surprises.

3 things you need to know

1. Maximum uncertainty

• April 2nd sweeping trade tariffs announcement was followed by a U-turn on April 9th
• This caused a major shock in markets and raised the prospect of retaliation from some countries, with China taking countermeasures
• Consumer and business morale will further deteriorate and the likelihood of a recession is increasing in the US and abroad
• This is likely to negatively impact risky assets and in particular US Equities

2. Tectonic shifts

• The tariffs announcements reinforce a tectonic shift underway in the global economy
• The post-war global architecture might falter as US policies undermine trust in the world’s largest economy
• Capital repatriation from the US is a material growing risk
• This would be negative for the USD versus other currencies

3. Europe and China drift

• Meanwhile a potential ‘game changer’ moment in Germany could open the door to a sustained upturn in fiscal policy
• Broader Europe is experiencing a structural revival supported by a boost in funding, lending growth and easing monetary policy
• In China, innovation in Artificial Intelligence (AI) and Electric Vehicles (EV) has disrupted markets such that China tech stocks now appear more competitive against their US peers
• However, Chinese companies face the challenge of particularly high US tariffs