Key Points
- We recommend investors to focus on high-quality stocks and sectors whose earnings growth is tied to long-term structural trends.
- With our recent downgrade of US, some other markets, such as China and Europe, have become more attractive. Japan also remains a compelling market for long-term investors.
- Money-market funds and short-duration bonds offer a safe haven, providing shelter while still generating a decent yield, which is expected to remain attractive.
- For investors willing to take on some credit risk but are not too keen on the wild gyrations of the equity market, corporate bonds offer a sweet spot in between.
Editor’s note (7 April 2025): This article has been updated with our views on Japan.
Liberation Day is finally here, and it’s anything but pleasant.
President Donald Trump has just escalated his global trade war by implementing a universal 10% tariff on all imports. Additionally, he has announced reciprocal tariffs for 60 countries identified as the "worst offenders," with China facing a 34% reciprocal tariff and the European Union a 20% rate. For China, this new reciprocal tariff will be added on top of the existing 20% tariff, bringing the total rate to a whopping 54%. According to Evercore ISI, imports into the US will now face a weighted-average tariff rate of 29%, a dramatic increase from 2% or so last year (Chart 1).
Chart 1: Tariff rate at highest level since 1800s
Trump’s latest move took many by surprise and is likely bleaker than many of the worst-case scenarios for his trade policies envisioned just a few days ago. Before you panic and make hasty changes to your portfolios, we urge you to stay calm. Read on to find out how you can protect your portfolios from the impact of Trump's policies.
1. Be selective when buying the dip!
As counterintuitive as it may seem, market volatility often presents some of the best opportunities for investors to buy stocks at lower prices. However, we advise against buying just any stock during a dip – it's important to remain selective.
We recommend that investors focus on high-quality stocks. These companies are typically industry leaders with sustainable competitive advantages, which enable them to stay ahead of the competition. Many of these firms operate globally, holding dominant positions not only in the US but also in various international markets. With solid balance sheets and strong profitability, high-quality stocks are well-equipped to weather economic shocks. For exposure to such companies, investors can consider the JPMorgan US Quality Factor ETF (NYSE:JQUA).
Investors should also buy the dip in sectors whose earnings growth is tied to long-term structural trends, such as the digital economy and semiconductor industries. Companies in these sectors are well-positioned to benefit from future technological advancements, including the rise of artificial intelligence (AI), where major tech firms are poised to dominate every layer of the AI value chain. Relevant ETFs for these sectors include the Invesco NASDAQ Internet ETF (NASDAQ:PNQI) and the VanEck Semiconductor ETF (NASDAQ:SMH).
Other sectors, however, are less fortunate, especially industrials, materials, consumer staples, consumer discretionary, and energy. These sectors are particularly vulnerable to the impact of Trump's tariffs. Buying the dip in stocks within these industries may not be wise, given their weakening fundamentals and dimming earnings outlook.
Related articles:
US: Downgrading to 2.5 stars “Neutral” amid an escalating trade war
Nasdaq enters correction — should investors be concerned?
2. Consider these other stock markets
With our recent downgrade of US, some other markets have become more attractive.
We are increasingly seeing China in a more positive light. Its economic problems are already well-known, and the government is now keen to reverse the damage done to the private sector over the past few years. This shift is evident from a recent meeting between President Xi Jinping and a group of private sector leaders, including the previously sidelined Jack Ma and Liang Wenfeng, the founder of DeepSeek. During the meeting, President Xi emphasised the importance of entrepreneurship and the vast potential of the Chinese market.
Additionally, with President Trump now waging a massive trade war, there is increased pressure on the Chinese government to rescue its ailing economy. With expectations already low, any positive developments from China could serve as a significant catalyst for the market. For investors interested in gaining exposure to China, they can consider the iShares Core MSCI China ETF (HKEX:2801) or the Fidelity China Focus A-SGD.
Related articles:
China’s Two Sessions unveil opportunities in technology-centric sectors
China is on track to be a Dark Horse, as we said!
Europe is another market worth considering. Trump’s tariffs have jolted European policymakers to take action, accelerating reforms that have long been needed. This is best symbolised by Germany, a country that has long been averse to public debt, which is now moving forward with an investment plan that will unleash hundreds of billions of euros into defence and infrastructure. Our recommended fund for exposure to European equities is the Eastspring Investments Unit Trusts - Pan European SGD.
In particular, Europe’s defence industry looks increasingly attractive. Trump’s abandonment of the transatlantic alliance, which has long been the cornerstone of European security for generations, will push European nations to significantly increase their defence spending. This shift could create significant opportunities within the sector. For exposure to Europe’s defence industry, investors can consider the WisdomTree Europe Defence UCITS ETF – EUR Acc (LSE:WDEF).
Related article:
European defence stocks rally amid growing transatlantic divide: A paradigm shift?
Meanwhile, Japan remains a compelling market for long-term investors.
Its economy is undergoing a period of structural transformation from deflation to inflation, prompting companies to tackle the decades-long issue of wage stagnation. This shift is leading to rising wages, which boosts household purchasing power and creates a virtuous cycle of rising wages and prices. These dynamics help strengthen economic resilience and provide a foundation for corporate earnings growth.
Furthermore, corporate reforms promoting capital efficiency are leading to increased shareholder returns through higher dividends and a surge in share buybacks, while the renaissance in Japan’s semiconductor industry will have positive spillovers to not just the economy, but also the stock market.
With structural tailwinds from economic normalisation, corporate governance reforms, to a semiconductor industry revival, Japan offers strong long-term upside potential. Our recommended products to gain access to Japan’s equity market are the Xtrackers Nikkei 225 UCITS ETF 1D (LSE:XDJP) and the Eastspring Investments - Japan Dynamic AS SGD.
Related article:
Invest in Japan: A structural opportunity with promising earnings prospects
3. Money-market funds and short duration bonds to de-risk portfolios
In light of the recent volatility, some investors may understandably want to de-risk their portfolios.
Money-market funds and short-duration bonds offer a safe haven, providing shelter while still generating a decent yield, which is expected to remain attractive. Even if US growth weakens and the Fed lowers rates, we do not expect massive rate cuts. Whether you’re looking for a low-risk investment product, or a temporary cash parking facility before re-deploying in other products, here are some cash-management solutions that can help you earn that extra yield!
The Auto-Sweep account is our in-house liquidity solution designed to deliver a return higher than the Cash account, while maintaining a high degree of liquidity and capital preservation. It consists of 90% iFAST Enhanced Liquidity Fund and 10% Cash, making it ideal for investors looking to earn a higher yield on their idle cash as they await their next investment opportunity. Funds in the Auto-Sweep account can also be used directly to purchase investments on iFAST platforms, with no delays. As of 1 April 2025, our SGD and USD Auto-Sweep accounts offer yields of 2.470% and 3.845% respectively.
In addition, investors can also consider our Enhanced Liquidity Funds (ELFs), namely the iFAST SGD Enhanced Liquidity A SGD and the iFAST USD Enhanced Liquidity A USD, which aim to preserve capital and provide investors with a high level of liquidity while enhancing yields. These ELFs are well-diversified across issuers, counterparties, and across product types, including money market funds, deposits, and bonds. As of 28 March 2025, they offer yields of 2.80% and 4.25% respectively.
Alternatively, investors can choose from the multiple money market and short-duration bond funds on our platform to fit into their portfolio, including the Fullerton SGD Cash Fund, Nikko AM Shenton Short Term Bond Fund, and the United SGD Fund. For USD, they can also consider the Amundi Funds Cash USD or the HGIF - Ultra Short Duration Bond Fund.
Related articles:
Every dollar counts – make the most of your cash with these cash management tools
Fed holds rates steady (again) in March – our thoughts
4. Defensive corporate bonds offer a less volatile sweet spot
For investors willing to take on some credit risk but are not too keen on the wild gyrations of the equity market, corporate bonds offer a sweet spot in between.
In particular, non-US issuers that operate locally and are not dependent on global supply chains should be less impacted by the recent escalation in the trade war. Their operations, revenues, and margins are likely to be less vulnerable to shocks from the reorganisation of the trade system and shifts in the global economic order. Given their stable operational and credit profiles, these issuers typically face a lower risk of credit spread widening compared to others.
Here are some of our top picks for your consideration:
|
Issuer / Guarantor |
Bond Name |
YTM |
|
Meituan |
4.7% |
|
|
CTF Services |
7.5% |
|
|
Mirae Asset Securities |
4.9% |
|
|
Muthoot Finance |
6.6% |
|
|
Rakuten |
6.3% |
|
|
Just Group |
6.0% |
|
|
LBS Bina |
4.3% |
|
|
OUE Limited |
4.0% |
|
|
HSBC |
5.1% |
|
|
Commerzbank AG |
4.9% |
|
|
FWD Group |
7.1% |
|
|
Sources: Bondsupermart, iFAST Compilations. Data as of 3 April 2025. |
||
A global trade war is not the end of the world
While the global economic order is undergoing significant changes, it’s not the end of the world. On a positive note, Trump’s drastic actions could finally spur other countries into action, giving them political urgency to pursue economic reforms and forging new alliances.
Investors should also remember that stock markets don’t always rise in a straight line. While short-term volatility is inevitable and there are no guarantees that stock prices won’t drop, investing with a long-term perspective is nearly always a winning strategy.
Declaration:
For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a NIL position in the abovementioned securities. The analyst who produced this report holds positions in the VanEck Vectors Semiconductor ETF and the JPMorgan US Quality Factor ETF.
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