Preface

In an era of economic complexities, the global stock markets have shown a surprising resilience against Trump's tariff policies. As the 90-day tariff exemption period ends, many countries face renewed threats of tariff increases. Yet, unlike past fluctuations, this round of tariffs hasn't significantly shaken the global markets. This article explores the shift in market drivers and the reasons behind the newfound stability amidst potential trade tensions.

Lazy bag

Global markets have adjusted to Trump's tariffs. This resilience is due to a shift towards fundamental-driven pricing. With economic recovery signals, markets are less influenced by tariffs.

Main Body

The termination of the 90-day tariff exemption has once again brought tariffs to the forefront of international trade discussions. Trump has resumed imposing tariffs on 23 countries, threatening additional costs on steel and pharmaceuticals. However, unlike the volatility witnessed in April, the stock markets have shown a remarkable immunity to these policies.

Historically, tariff announcements could sway stock prices dramatically. The unpredictability of Trump’s policy shifts often added layers of uncertainty, prompting reactive investor behavior. However, the current scenario reflects a market less susceptible to such changes.

Why have global markets begun to display immunity to tariffs? One reason lies in Trump's historical inconsistency; frequent reversals and negotiations have dulled the initial panic. Investors have learned that negotiations can lead to postponement or mitigation of the tariffs. More crucially, the focus has shifted to the market's fundamentals. Investors are now concentrating on core economic indicators, akin to the early 2020 pandemic response when markets gradually prioritized fundamentals over immediate disruptions.

The global economy is showing signs of a synchronized recovery, largely buoyed by policy measures. The 'Great American Act' has fostered expectations for a smooth economic setback in the U.S., while European policies aim for revival through fiscal expansion.

Data from static PMI indices across significant economies, including the U.S., Europe, ASEAN, and BRICS, indicate an upward trajectory or stabilization. Such trends reinforce the transition to fundamental-based pricing.

As these dynamics unfold, tariffs are no longer the primary trading factor. Much like how the market eventually adjusted to pandemic-driven uncertainties, similar trends are now visible concerning tariffs.

For A-share investments, it’s prudent to de-emphasize tariff-centric trading decisions in favor of fundamental evaluations. The export-oriented sectors involved in the global supply chain should be analyzed for their current cycle positions. American export chains, for instance, are seen peaking and entering a deceleration phase, contrasted by European chains demonstrating expansion potential. Some sectors signal a potential turnaround, such as certain energy and military exports aligned with economic rejuvenation plans.

In evaluating investments, leveraging export chains does not significantly enhance valuations due to inherent external variables like exchange rates and political tensions. Historical data suggests valuation swings from 10-30X, anchored around a median of 15X. Thus, investors are advised to prioritize sectors with substantial expansion evidence, such as motorcycles, marine wind, and construction machinery.

Remaining cautious of risks, geopolitical tensions, liquidity assumptions, and domestic growth policies must be monitored to understand their influence on market behaviors.

Key Insights Table