Trump’s tariffs need little introduction. World leaders, central bankers, economists and business owners alike have been left scratching their heads. What will President Trump do next? What are the direct and indirect implications for companies? The questions are endless.
While many might try to answer them, the erratic nature of recent trade policy decisions – combined with the complexity of our interconnected world – means much of it remains speculation.
This level of uncertainty often prompts long-term investors to adopt a ‘wait and see’ approach, holding back until greater clarity emerges to support strategic decision making. But it’s worth remembering that inflection points can offer some of the most interesting opportunities. Now is a time for global investors to take a close look at their portfolio allocations.
Early signals suggest net foreign flows into the US are turning negative, so international capital may soon start looking elsewhere
The US accounts for 66.5% of the FTSE World Index, and most active global managers maintain heavy exposure to American equities. Yet the full impact of recent trade and economic policies on the US remains unclear. That has broad implications for US economic growth – and doesn’t yet seem to be fully reflected in equity prices, even after recent declines in valuations.
Another pressing question is the level of foreign investment in US stocks. Are non-US investors still comfortable with such high exposure – economically or geopolitically? Early signals suggest net foreign flows into the US are turning negative, hinting that international capital may soon start looking elsewhere.
Meanwhile, many US institutional investors with large domestic allocations are beginning to revisit their exposure to overseas markets. Weakness in the US dollar is one clear sign that sentiment towards American assets is shifting.
‘Liberation Day’ increases the risk of a US and global recession
All of this brings us back to a fundamental critique of passive investing: market-cap weighted benchmarks can leave investors heavily concentrated in certain areas. That’s fine during a bull market – but when the tide turns, the risk becomes acute.
While the US still has powerful long-term growth drivers, rising uncertainty strengthens the case for revisiting portfolio fundamentals and diversifying through active strategies to reduce country-specific risk.
The UK may now be poised to benefit. Its status as the first country to sign a trade deal with the US post-‘Liberation Day’ should not go unnoticed. The US’s willingness to partner with the UK, coupled with improving EU relations, is encouraging. And the UK equity market offers attractive dividend yields, with added return potential from earnings growth and share buybacks.
The UK’s status as the first country to sign a trade deal with the US post-‘Liberation Day’ should not go unnoticed
But the real opportunity lies in a re-rating of valuation multiples – even a return to long-term averages could deliver strong returns.
UK valuations have suffered in recent years, weighed down by political instability. Investors have rightly asked: what will trigger a re-rating? It’s unlikely to be a single event. Instead, a confluence of factors – including a reversal in investment flows – may be the catalyst. The decisions currently being made in the US could well be what tips the balance.
‘Liberation Day’ might end up being most liberating not for the US, but for international markets.
Ben Russon is co-head, UK equities (large cap) at Martin Currie
