Weekly Buzz:🥊Tariffs, trade wars, and your portfolio

5 minute read

Trump is rolling out tariffs with all the determination of someone rearranging furniture, even if not everyone agrees with the new layout. The day after the US confirmed tariffs on its own neighbours, Canada and Mexico, the S&P 500 fell 1.76% – its worst day since December. But there might be relief coming, with US Commerce Secretary Lutnick suggesting that there may be some rollback.

All that tariff talk

1. The US has imposed 25% tariffs on imports from Canada and Mexico, affecting over USD 900 billion in annual trade. Canada’s countermove came in as tariffs on USD 20.8 billion (CAD 30 billion) worth of American goods, with another USD 86.8 billion (CAD 125 billion) to follow in three weeks. That was soon followed by hints of a compromise from US Commerce Secretary Lutnick.
2. Europe is next in line. The US will be imposing 25% duties on European imports starting April, with German automakers squarely in the crosshairs. Europe has pledged to respond with its own tariffs on American products if these measures take effect.
3. Across the Pacific, Trump is doubling existing tariffs on Chinese goods to 20% – timing the announcement with China's biggest political meeting of the year. Beijing responded with 10–15% tariffs only targeting US agricultural products – a signal that it prefers de-escalation. 

What’s the takeaway here?

The back-and-forth we're seeing may be the opening shots of a trade war. Economists warn that these wide-ranging policies could disrupt supply chains and push up prices globally, and that’s spooked markets. Remember, however, that market volatility is a short-term companion.

Right now, the data still points to a cooling – rather than a collapse – in the economy. The “soft” economic data that measure sentiment are shaky, but the “hard” data that measure real activity hasn’t reflected the impact of these policies. Sure, they aren’t pretty for growth, but there’s still a wide band of uncertainty.

This global chess match highlights why diversification matters – when one part of the market feels the pinch, others can offer relief. Our General Investing portfolios, for example, have benefitted from their allocations to safe-haven assets like gold, which has gained 11% year-to-date. While the S&P 500 is down 1.5% for the year so far as of Tuesday, global equities excluding the US are up 6%. With strategic asset allocation, you reduce your exposure to concentrated risks while remaining positioned to capture the longer-term opportunities that inevitably emerge.

💡 Investors’ Corner: What EPF’s 6.3% dividend reveals about investing strategy

EPF's 6.3% dividend for 2024 has Malaysians buzzing – and for good reason. It's the highest since 2017's stellar 6.9%, comfortably outpacing last year's 5.5% and the ten-year average of 5.9%. But the real story lies deeper, in how EPF navigates both local and global markets to deliver these returns.

In 2022, when the S&P 500 fell 18% with bonds alongside it, EPF delivered a solid 5.35%. During 2020's pandemic panic, when markets nosedived 25%, EPF maintained a 5.2% dividend. Even amid the 2008 Global Financial Crisis, EPF still managed 4.5%. Throughout various market crises, EPF’s returns have remained consistent, and at a rate which outpaces inflation.

What's EPF's formula? According to their 2024 portfolio allocation, a balanced mix with 46% in bonds and 42% in equities, paired with geographic diversification. This near-equal split safeguards capital while taking calculated risks – aligned with EPF's retirement fund mandate. Of its MYR 1.25 trillion fund, 67% is invested in Malaysia, while 33% is invested overseas. That international exposure, largely in equities, generated 50.3% of total investment income, capitalising on global equity gains of 19%.

Malaysians can learn a lot from the playbook of institutional investors like EPF. Firstly, diversifying across different asset classes and overseas markets can boost risk-adjusted returns. And there’s wisdom in a long-term mindset focused on retirement – besides securing your future, monthly contributions mean that you’re dollar-cost averaging, naturally putting one of investing's most powerful principles to work.

Note: References to the EPF rate are to the conventional dividend rate. The S&P 500 returns were used for comparison purposes as a bellwether for market conditions.

📺 From The Newsroom To You

Is the S&P 500 all you need? In his latest piece for The Business Times, our Co-founder and CEO Michele Ferrario explores the benefits – and limits – of putting all your eggs into a single ETF like the S&P 500.

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