Major markets have been hammered by US tariffs on imports announced last week. The Economist didn’t mince words about the US move, calling it “the most profound, harmful and unnecessary economic error in the modern era… mindless vandalism… utterly deluded… flat-out nonsense”.
What to do in these times?
“Asian investors should stay invested in Asia, as I think this region looks a lot more attractive, both on a valuation point of view but also from a relative growth perspective,” David Chao, global market strategist, Asia Pacific (ex-Japan) at Invesco, tells Asia Asset Management.
He pointed out that the US dollar has not appreciated in “any meaningful way” and that US stocks have been hit much harder than most major markets.
In fact, according to Ipek Ozkardeskaya, senior analyst at Swissquote Bank, anticipation that the US economy will falter faster than others has been weighing heavily on the US dollar since January.
“The reason why Asian currencies and risk assets have outperformed those of the US is the expectation that the US economy may be hindered more so by the tariffs than previously expected, and the belief that Asian policymakers are likely to ramp up both fiscal and monetary stimulus to provide a shield to their local economies and ensure that growth fundamentals are on track,” Chao says.
According to Chao, investors are concerned that the tariffs may trigger a recession in the US, noting that recent consumption data has been soft and that inflation expectations are spiking.
“The longer policy uncertainty continues, the greater the pressure on business and consumer sentiment. The US economy could be facing stagflation, and investors may look for cover elsewhere.”
