It has been quite a volatile year so far, markets were at all-time highs in January. However, in April Donal Trump implemented Tariffs against most countries, even The Heard and McDonald Islands did not escape the Tariffs despite only being inhabited by penguins. The highest tariffs were against China who responded in kind by increasing their tariffs on US goods.

The theory behind tariffs is to protect local industry against foreign countries undercutting the price of locally produced products. The locally produced product then becomes cheaper than the imported product, thereby driving demand for the locally produced product. Most countries make use of tariffs in one form or another, but it is quite extreme to have a blanket tariff with little consideration as this could affect trade between countries.

This resulted in a significant sell off in shares with some indices down over the 20% from their highs. Due to this fall in value, Donald trump put a hold on the implementation of these tariffs for 90 days, allowing those countries impacted to negotiate a trade deal to mitigate some of these tariffs.

We have since had a deal between US, China and the UK and as a result markets have since recovered, with most indices posting positive gains for the year to date, highlighting the importance of remaining invested, even in volatile time.

Our portfolios have been less affected by the current market turmoil as we had a lower allocation to the US on concerns that their shares were expensive, especially the big 7 tech companies. The UK and Europe are cheaper than historical valuations and are seeing significant inflows as investors move their money away from the US.

In the UK, Interest rates were reduced by 0.25% in May and we would expect at least 2 more reductions in this year.  This will be supportive for all UK assets, except for cash which will see savings rates coming down. Economic growth for the first quarter was better than expected so things are looking better.  The Prime Minister has renegotiated the Brexit deal with the EU providing concessions in making trade easier which will be supportive of the economy.

Europe will in all likelihood continue to cut interest rates further this year to encourage economic growth and protect against the effects of tariffs. Lower interest rates tend to weaken your currency thus protecting against the higher costs of the tariffs.

In Asia, the deal between China and the US has also meant a rebound in markets there. We still maintain a lower direct allocation to China, preferring to diversify into Taiwan, Australia and India.

Overall, we feel that many shares were sold off indiscriminately and has provided a clear buying opportunity for investors. As markets recover, we will see good quality companies coming to the fore as they will be able to better deal with the financial uncertainty around the implementation of tariffs.