Trump surprises negatively with tariff announcements
The White House has announced comprehensive new tariffs, which have triggered strong market reactions worldwide. In our view, the US government's tariff methodology suggests that they are aiming more at negotiations rather than maintaining them permanently. Important exemptions show that the US administration is concerned with limiting damage to its own economy and is aware that there are significant risks for the USA as well. Only six countries account for 70% of the implied tariffs. This indicates that a few key agreements could already alleviate much of the pressure.
Assessments, positions, and outlooks represent a snapshot and can change at any time without notice. They have been created using information that we consider reliable and correct; however, no guarantee can be given. Due to the complex global trade interconnections, the many different possible reactions and actions by a vast number of stakeholders (governments, companies, central banks, financial market participants), any impacts and scenarios are generally only very limitedly calculable and fraught with high uncertainties.
US President Trump has clear incentives to strengthen the markets and attract as many investments as possible into US manufacturing before the next presidential election – and sees tariffs as an instrument for this. Whether he will achieve significant success with this is currently as uncertain as the further development on the trade and tariff front in general. Given his notoriously erratic behaviour and the fact that he is reluctant to be influenced in his decisions, almost anything seems possible. Even a reversal or a significant rollback of the tariff measures is conceivable, provided he can sell it as his victory or receives acceptable concessions in return. Currently, a mitigation of many measures through negotiations seems most likely. The faster this happens, the better; the longer it takes, the greater the economic damage worldwide (note: this is just one possible scenario among many).
Economic impacts
The tariffs for Europe have been set somewhat below expectations, while those for Asia have been set above. Overall, global economic growth is likely to be reduced by around 1%. In the USA, the negative effect is likely to be even slightly stronger. This assessment is subject to possible retaliatory measures by other countries and potential fiscal programmes in individual countries to cushion the negative impacts, which cannot be assessed at this time. For inflation rates, we expect a slightly reducing effect for Europe, while in the USA we currently anticipate an increase of 1 – 1.5%.
Impacts on our funds
Naturally, all funds and all asset classes are affected by these announcements and market movements, albeit to varying degrees. In some fund products, such as Emerging Market equities, the fund portfolios have been positioned quite robustly for tariff risks for some time, given Trump's focus on China. However, this does not mean that these funds are immune to value losses. In other equity funds, some positions will be more affected by the tariffs, others less so or not at all. This once again highlights the advantage of good risk diversification.
In several mixed funds, we reduced some of the riskier portfolio positions in March, which benefited these funds in recent days. Most bond funds and mixed funds of Raiffeisen KAG have benefited from the general decline in yields on government bonds and their positioning for further declining bond yields. For corporate bonds, high-yield bonds, and Emerging Market bonds in hard currency, risk premiums have widened significantly, which is initially negative for performance. However, this has been wholly or partially offset by the corresponding general yield declines in government bonds.
Our fund management currently sees no reason to react with strong reallocations – especially not when the news situation can change massively at any time. However, there will be adjustments to counteract increased risks or to take advantage of opportunities. This is standard practice for our active fund management beyond the current tariff news.
Ultimately, long-term investing almost always outperforms short-term actions, not to mention panic reactions. The current situation will be no exception, even though uncertainties and price fluctuations could persist for some time. With a fund savings plan, the current price fluctuations and declines can even be exploited by using the lower price levels, especially for equities, for purchases. Depending on market development and the timing of entry, a one-time investment may also prove to be more favourable in retrospect.
Please note: Investing in securities always involves risks, such as price fluctuations and capital loss, regardless of the timing of entry. Please consult your customer advisor for more information.