News

Please see the below article from Tatton Investment Management on the potential impact of Trumps tariffs, a review of asset returns and the Bank of England rate cuts. Received 10/02/2025

Up and down and on and off
The week began with, potentially, a very distasteful pill to swallow. Trump announced another 10% of tariffs on China and new 25% tariffs on Mexico and Canada, the US’ closest and single largest trading partners. 

Markets fell on the news but without a sense of panic and then turned, following a pause in the tariff introduction to March after Mexico and Canada offered concessions on border control. China, announced countermeasures but limited to minor imports. 

This first bout of nation tariff bullying looked extreme, such as the 25% levies on Mexico and Canada, but will likely reduce if a deal can be stuck. Analysts predict further general tariffs of 10% on China, with Canada and Mexico’s tariffs dependent on a renegotiated USMCA (US-Mexico-Canada Agreement), probably concluding sometime next year, dependent on Trump’s assessment of delivery on his agenda. 

However, Trump has today announced planed tariffs of 25% on all steel and aluminum imports to the US. Mexico and Canada are two of the US’s biggest steel trading partners, with the latter being the biggest supplier of aluminium to the US.

Analysts are split on the impact of tariffs: Goldman Sachs predict a 0.5% rise in US inflation without significant growth impacts, however, the US Tax Foundation looks to Trump’s first term where tariffs reduced US GDP by 0.2%, and employment by 142,000 jobs. Potentially larger tariffs and higher consumer prices could complicate the Federal Reserve’s ability to cut rates further.

Despite all the noise, markets ended the week broadly flat, with non-Trump news having more impact.

All of the Magnificent 7 except for Nvidia have reported earnings and investors seem to be disappointed with the results. DeepSeek has made investors more sceptical that AI dominance needs enormous investment that only the largest companies can deliver. However, US big tech disappointment was offset by US mid-cap and smaller-cap companies that are finally showing some earnings growth.

Away from the US, the Bank of England’s announced a welcome rate cut, taking the Base Rate from 4.75% down to 4.5%. Fears remain over falling near term growth and inflation and if correct, the economy is on a weaker path and a small rate cut will not create much benefit. 

Still, the FTSE 100 moved to new highs after the rate decision, suggesting investors believe a general improvement even if it’s difficult to say that any one thing is great. Let’s hope so.

January asset returns review
The new year began with significant attention on Donald Trump’s influence on global markets. Despite policy uncertainty and fears, equity markets remained stable, with Europe (ex-UK) equities showing the best returns. Trump’s tariff threats initially raised inflation fears, but later hints suggested a more gradual approach. US stocks performed well, with smaller companies outpacing larger ones.

In late January, the AI sector was shaken by DeepSeek, a Chinese start-up, announcing a low-cost AI engine, impacting Nvidia’s market value. Nvidia’s loss affected major tech stocks, while smaller companies benefited from lower AI costs. Asian markets rose, despite initial declines in Chinese stocks due to tariff concerns.

Energy and commodity prices fluctuated, with oil prices spiking due to US sanctions on Russia. Bonds had a turbulent month but ended with gains, aided by declining yields and tightening credit spreads. Global inflation remained contained, with the US Federal Reserve pausing rate cuts, while the ECB continued to cut rates.

US economic sentiment remained positive, though tempered as Trump’s presidency began. Employment measures were strong, but businesses awaited new policies. In Europe and the UK, confidence data showed mixed signals, with manufacturing sentiment rising but overall confidence still deteriorating. China’s consumer confidence showed signs of improvement due to government subsidies, though the outlook remained uncertain.

Bank of England in a bind 
On Thursday, the Bank of England’s Monetary Policy Committee (MPC) cut the Bank Rate by 0.25% to 4.5% due to weaker-than-expected GDP growth and declining business and consumer confidence. The labour market was balanced, and there was sufficient progress on inflation and wages to justify the rate cut. The MPC maintained a meeting-by-meeting approach, expecting CPI to rise again but only briefly due to higher gas prices.

The vote to cut rates was seven to two for a cut. Catherine Mann, known for her hawkish stance, even voted for a 0.5% cut, due to weakened growth. Citibank Research forecasts 2025 UK real growth at just 0.5%, albeit the lowest among 54 forecasters.

The BoE expects headline CPI to fall to 2% by 2026 after rising to 3.7% by Q3 2025, acknowledging uncertainty about inflation rising from potential tariff trade wars. The MPC noting a decline in supply growth from 1.5% in early 2024 to 0.75% by Q1 2025. 

The BoE highlighted the importance of investment for the UK, observing that rising productivity would not offset a slowing labour force growth. Rates are expected to fall another 0.5% to around 3.75%, with a chance of further cuts towards 3%. Public investment is likely to benefit productivity in the long term, although current uncertainties make it difficult to gauge the exact impact.

Productivity gains may be achieved through technology rather than large-scale infrastructure, and artificial intelligence may yet be our saviour. Meanwhile, if Dr. Mann can be persuaded that faster rate cuts are necessary now, the chances that she will remain a dove must be reasonable and that may persuade those of a more dovish nature to lower rates more in the near future.

Please continue to check our blog content for advice, planning issues and the latest market, investment and economic updates from leading investment firms.

Marcus Blenkinsop

10/02/2025

Please see the below article from EPIC Investment Partners detailing their discussions on the latest HMRC changes addressing the long-standing issue of overtaxed pensions. Received yesterday 06/02/2025.

Pensioners, there is good news for you! The HMRC has announced changes that it hopes will help it address the long-standing issue of over-taxed pension withdrawals. These changes could mean that more money stays in your pocket, where it belongs.

In a bid to make the system fairer and more efficient, HMRC is introducing a number of changes that will help to reduce the incidence of over-taxation and to simplify the process of claiming a refund. One key improvement is going to be the replacement of emergency tax codes with accurate tax codes in real time. To do this, HMRC will work more closely with pension providers to share data, and as a result, the correct tax code will be applied as soon as possible. This way, retirees won’t have to worry about being overtaxed, especially if they make several withdrawals in a year.

Furthermore, when overpayments do occur, HMRC has promised to process the refund faster. This will help to reduce the impact of such errors on pensioners, who will not have to wait unduly for their money to be repaid.

To help pensioners, HMRC is asking people to take certain steps when making their withdrawals. These include ensuring that the correct tax code has been applied; checking the tax deductions on pension payments; and being prepared to claim a refund if necessary. In the event that people are overtaxed, the online tools, and simple forms provided by HMRC enable them to reclaim their overpaid amounts easily.

This shift shows HMRC is listening to pensioners and working to create a system that is fairer for everyone. It’s a step in the right direction, ensuring that your hard-earned savings support your retirement money and not sit in unnecessary tax payments.

Please continue to check our blog content for advice, planning issues and the latest market, investment and economic updates from leading investment houses.

Alex Clare

07/02/2025

Please see the below article from Brewin Dolphin on China’s economic outlook, received late yesterday evening:

With snakes symbolising renewal, agility and resilience in Chinese culture, Head of Market Analysis Janet Mui explores why the Year of the Snake is a critical period for China as it tackles economic challenges, technological advancements, and global competition.

A common saying has it that when China sneezes, the world catches a cold. As the world’s second largest economy, largest exporter, and largest commodity importer, its direct impact on the global economy has been significant over the past few decades. But is this influence set to change? Let’s take a look…

China’s prospects in the Year of the Snake

2025 is set to be a symbolic milestone for Chinese ambition and national pride.

Ten years ago, China unveiled a comprehensive industrial strategy named ‘Made in China 2025’ that aimed to transform China from a low-value manufacturing hub to the global leader in cutting-edge technology and innovation.

Fast forward to 2025 and China has largely succeeded – from its dominance in solar panels, electric vehicles and drones, to its advancements in artificial intelligence (AI), most recently through AI disruptor DeepSeek.

‘Made in China 2025’ has proven successful despite U.S. export restrictions, cementing China’s status as a leading strategic rival to the U.S. Now with the acceleration of AI development, the Year of the Snake presents an opportunity for China to evaluate its progress and set new goals for growth.

That said, China faces its challenges, most notably a deflating housing bubble. However, the country’s strong technological dividends – already integrated and enjoyed in everyday life – and its robust national infrastructure, provide a solid foundation for new growth drivers to emerge.

China’s challenges are wrapped in complexity

First, China must uncoil a complex set of challenges. These are both cyclical and structural, as well as domestic and international.

Domestic property

The elephant in the room is the struggling property sector, which has depressed investment and suppressed consumer confidence. Deflation (when prices keep going down) is a threat due to oversupply and a reluctance to spend, as people wait for prices to drop further. The housing market has a significant impact on confidence because if prices rise, owners tend to have more confidence to spend. While home prices and sales declines have stabilised, a sustained reduction in home inventory will take time. Demographic trends, such as a fall in household formation, also pose a long-term challenge to demand.

Consumer confidence

Critical to China’s renewal is confidence, particularly in the economy and job security – the latter being key to unlocking near-term spending power. However, young people face a tough jobs market and rising job insecurity, which threatens their income stability and reduces their desire to start families. This trend is underscored by the government’s decision to stop publishing youth unemployment data and the spread of the ‘lie flat’ attitude on social media; this involves young people putting in minimal effort at work.

Although the Chinese have great potential spending power due to a high savings rate, a reluctance to spend persists amidst falling property prices and economic uncertainty. Research from the People’s Bank of China has indeed shown an increased desire to save.

Tariffs

China must also contend with prominent external challenges, such as U.S. President Donald Trump’s imposition of additional 10% tariffs on Chinese products. The potential escalation in trade tensions between China and the U.S. will pose risks to China, but the threat may also prompt it to confront its domestic structural challenges head-on.

The complexity of these challenges demands patience. Despite government stimulus, it’s perhaps wishful thinking that things will turn rosy solely due to that. The view is that there needs to be some bolder and more creative fiscal policies in the Year of the Snake to harness growth and boost the confidence of businesses, consumers, and markets.

How will China untangle itself?

Just as snakes adapt to their surroundings, so must China’s policymakers, who will need to be agile in response to the shifting economic landscape.

A China-U.S. trade war could be damaging, but it could also hasten China’s shift towards a growth model that prioritises domestic consumption over a reliance on exports and investment.

China’s long-standing growth model of fixed investment via infrastructure and property is showing diminishing returns and is unsustainable. While the latest government stimulus package improves the supply and price of credit, the fundamental problem is inefficient capital allocation and risk aversion.

The Chinese authorities have long advocated for a shift in growth priorities to consumption, whose share in GDP (gross domestic product) remains much lower than other major economies. However, China’s cultural emphasis on saving and its limited social safety net, along with a lack of domestic investment options, has contributed to its high savings rate. 

The government’s current consumption support policies have focused on subsidies for upgrades like new white goods or electric vehicles, with limited success. New plans announced at the end of 2024 aim to provide more direct support to families with multiple children and those struggling with extreme poverty. However, markets remain unimpressed at the scale of these measures.

Amidst the crosscurrent of domestic and external headwinds, the risk of rising unemployment is high. The rapid pace of AI development and potential labour displacement could exacerbate uncertainty, threatening social stability and consumer confidence. This perfect storm of challenges may serve as a catalyst for China to take bold action.

Can the Chinese market get its bite back?

The tentative recovery of Chinese equity markets in 2024 was driven by stimulus. In 2025, markets will be looking for the right type of stimulus, like that boosting household consumption, and the recovery in economic data. A less aggressive tone from President Trump will also enable a more sustainable rebound. There’s a fair, but not high, probability that all of these may happen.

The Chinese equity market offers cheap valuations, making it an attractive diversifier against the U.S. market. As AI development progresses in China, investors may revive interest in Chinese tech companies that were previously battered by regulatory concerns. Although any potential upside should be balanced against the unpredictable regulatory and political risks.

As for Chinese government bonds, yields have slumped to record lows due to deflation risks and economic concerns. If the economy improves, yields should edge up in 2025. The Chinese authorities are also wary of potential volatility in the financial system, warning institutions not to over-invest in Chinese government bonds.

China may also allow for a more competitive exchange rate, but it will proceed with caution in managing the yuan’s depreciation, given the macroeconomic and trade risks.

How does China’s economy impact the UK?

As we’ve seen, China faces its challenges, and given the size of its economy, this could impact global markets, including the UK. Or perhaps not?

As China shifts towards self-sufficiency and less commodity-intensive growth, its direct impact on the world will wane in comparison to the last few decades.

Interestingly, despite negative sentiment on China, developed markets’ equity indices have performed well, with a few exceptions.

A return to confidence in China could boost global markets, particularly European equities. For example, Chinese activity drives some of the largest stocks in the EURO STOXX 50 index, such as consumer discretionary and industrial stocks.

For the UK, China’s data typically influences mining stocks, given China is the world’s largest industrial commodity importer. This relationship will likely hold, if not weaken slightly, as the driver of Chinese growth shifts more towards consumption from investment.

Selected UK banks, like HSBC, are also exposed to China. A large share of HSBC’s profits is derived from Chinese markets, and its exposure to the Chinese real estate sector is a source of concern for investors.

However, the UK is limited in its direct economic exposure to China, with only 5% of UK exports going to the country. For context, the UK actually exports more to Ireland than to China. This probably explains why the UK chancellor is keen to strengthen dialogue with Chinese officials and explore more bilateral trade opportunities.

Despite the UK’s limited direct exports to China, the country’s supply chains are highly interconnected with those of China. As a result, any shocks in China’s economy are likely to have an impact on UK manufacturers, particularly those in the automotive industry.

From lurking to striking in the AI race

Despite economic and domestic headwinds, the Chinese have a proven track record of innovation and adaptation. Today, it regularly boasts the highest number of STEM (Science, Technology, Engineering and Mathematics) PhD graduates each year. Together with bold stimulus action, it will be this innovation that helps steer China through its challenges.

China’s tech capabilities saw a ground-breaking AI development, DeepSeek, introduced at the turn of the Chinese New Year. The Chinese AI start-up has developed a robust open-source AI model at a fraction of the cost used to train its Western equivalent, ChatGPT. Its model also requires significantly less computing power to operate, making it a more efficient and cost-effective solution.

While the economics of DeepSeek have yet to be verified, the innovative technique to improve efficiency in training and inference has been applauded by top technology companies, including ChatGPT-maker OpenAI. DeepSeek’s unveiling has been a revelation in the global AI race, which begs the question, how did it happen?

Ultimately, China’s deprivation of high-end graphics processing units (GPUs) due to U.S. export controls forced Chinese AI developers to work with limited resources and constraints. This led to accelerated innovation and cost efficiency.

A year of several skins?

In the Year of the Snake, we can anticipate further reports on technological breakthroughs and transformations emerging from China’s robust ecosystem. This includes its strong STEM pool, vast data resources, extensive industrial facilities, and a culture characterised by determination, adaptability, and a rich history of innovation. Investors will undoubtedly keep a close watch on these attributes and developments.

Overall, the Year of the Snake is poised to be a time of renewal and agility for China, with potential for positive effects to ripple out to the global community.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Andrew Lloyd

07/02/2025

Please find below the thoughts of the Evelyn Partners Investment Strategy team on today’s Bank of England MPC decision to cut interest rates by 25bps to 4.5%.. Received today – 06/02/2025

What happened?

As widely anticipated and long priced in, the Bank of England delivered the third quarterly 25 basis point cut of this easing cycle, taking the Bank Rate to 4.50%. 

The vote was split 7-2, versus the 8-1 shown by the Bloomberg survey. 

What does it mean?

Surprisingly, the voting split was significantly more dovish than expected with two members preferring to reduce the Bank Rate by 50bps to 4.25%, as opposed to the anticipated dissenter voting to hold.  Even more extraordinary was that one of those calling for the bigger cut was Catherine Mann, previously seen as the biggest hawk.

Weaker than expected GDP growth since the November Monetary Policy Report was noted, along with declining business and consumer confidence indicators.  This includes the unhelpful mix of weaker hiring intentions and higher price expectations (to 3.7% in 3Q25), driven by global energy costs and regulatory price changes.

As to the tone of the guidance there was little change with progress on the inflationary front being acknowledged ‘while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures’.  The bank retained full flexibility emphasising ‘the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.’

Given the complicated mix of colour from the meeting, market reaction was muted. 

Bottom Line

The BoE lowered interest rates to 4.50%.  The UK swap market is pricing three further cuts through 2025.  Given the weakening growth outlook for the year, it will be interesting to see if committee members begin to look through inflation concerns resulting in the pace of quarterly rate cuts picking up.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Marcus Blenkinsop

6^th February 2025

What happened?

As widely anticipated and long priced in, the Bank of England delivered the third quarterly 25 basis point cut of this easing cycle, taking the Bank Rate to 4.50%. 

The vote was split 7-2, versus the 8-1 shown by the Bloomberg survey. 

What does it mean?

Surprisingly, the voting split was significantly more dovish than expected with two members preferring to reduce the Bank Rate by 50bps to 4.25%, as opposed to the anticipated dissenter voting to hold.  Even more extraordinary was that one of those calling for the bigger cut was Catherine Mann, previously seen as the biggest hawk.

Weaker than expected GDP growth since the November Monetary Policy Report was noted, along with declining business and consumer confidence indicators.  This includes the unhelpful mix of weaker hiring intentions and higher price expectations (to 3.7% in 3Q25), driven by global energy costs and regulatory price changes.

As to the tone of the guidance there was little change with progress on the inflationary front being acknowledged ‘while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures’.  The bank retained full flexibility emphasising ‘the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.’

Given the complicated mix of colour from the meeting, market reaction was muted. 

Bottom Line

The BoE lowered interest rates to 4.50%.  The UK swap market is pricing three further cuts through 2025.  Given the weakening growth outlook for the year, it will be interesting to see if committee members begin to look through inflation concerns resulting in the pace of quarterly rate cuts picking up.

Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.

Marcus Blenkinsop

6^th February 2025

Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 04/02/2025

Trump and tariffs: What do they mean for key trade partners?

We look at how Trump’s major tariff changes could affect economic relations.

The return of tariffs

In his first term, it took Donald Trump a year to impose the tariffs he had threated during his campaign. Delays were compounded by the efforts of his own administration to thwart him.

This time around, it took him less than a fortnight.

Last weekend there was the announcement that 25% tariffs would be imposed on all U.S. imports from Canada and Mexico, with the exception of oil imports from Canada, which suffer a preferential rate of just 10%. The scale of these tariffs is much more severe than during the first Trump presidency when tariffs were limited to solar panels, washing machines, steel and aluminium.

Broadening the scope of countries affected obviously increases impact, but it also compounds it by reducing the workarounds where goods can be funnelled through different countries.

The announcement of these tariffs could have been seen as crystallising one of the major uncertainties which the market had been facing since it became likely that President Trump would return to the White House. But I avoided writing that it brings certainty. The tariff threat could very easily be dialled up or down. Trump was already warning that the European Union would be confronted, while hinting that the UK could possibly avoid it. Meanwhile, he’d already threatened Colombia with rising tariffs before dialling them back in less than an hour.

The tariffs against Canada and Mexico were delayed a month following calls with their respective leaders and apparent deals over enhancing border security. Companies had been working to get stock across the borders ahead of President Trump taking power. They’ll redouble those efforts now.

What happens when that month elapses? Here are a few potential scenarios:

• Canada and Mexico face a material risk of recession when, or if, these tariffs are imposed, while the U.S. may also suffer weaker growth.
• The average weighted tariff rate on U.S. imports will rise threefold on the levels seen in 2018.
• The impact on growth depends upon whether the money taken from U.S. consumers and businesses via tariffs finds its way back to them or just reduces the deficit.
• Inflation in the U.S. will rise, with some expecting it to reach 3%. Although the impact of tariffs should be a one-off adjustment which drops out of the Consumer Price Index (CPI) rate after a year, unless it impacts inflationary expectations. 

A big week for earnings

All of this came after a pretty hectic week of market movements. Last week was a big week for earnings, with Apple, Tesla, Meta and Microsoft from the ‘Magnificent Seven’ all reporting, but the volatility was driven by events taking place on the other side of the world.

In terms of those earnings, Apple’s were pretty good. Although its performance in China was weak due to increased competition, the company remains positive on broader emerging market sales. It also emphasised that iPhone sales have been stronger in regions that offer Apple Intelligence, the firm’s AI system, which has attracted some scepticism from the investment community.

Tesla’s results were behind estimates and vehicle sales guidance for 2025 was lowered. However, the shares shrugged this off due to strong performance in battery sales, plans for self-driving cars, and, particularly, a focus on Optimus humanoid robots, which the company is developing. 

The robot is expected to be used internally at Tesla for various tasks by the end of this year, with delivery to external companies pencilled in for the second half of 2026. Elon Musk’s companies tend to deliver amazing innovations, even if they don’t always meet their intended deadlines.

As for Microsoft, its results were a disappointment to the market. Growth in the Azure cloud services platform may be impressive at 31%, but some analysts expected it to be higher still. The theme of AI was again running through the discussion.

A new player in the AI space

These companies were reporting after last weekend’s revelation that Chinese hedge fund High-Flyer’s AI lab, DeepSeek, has created an AI model that performs on par with industry leaders.

What’s notable about this company is its ability to achieve impressive results with limited resources. While other companies have spent hundreds of millions of dollars on developing similar technologies, this firm has managed to do so at a cost of just a few million dollars. Its model also requires significantly less computing power to operate, making it a more efficient and cost-effective solution.

The efficiency comes from building a ‘mixture-of-experts’ approach. This means that instead of trying to produce one enormous model that can do the widest range of tasks, DeepSeek’s model is essentially a series of smaller specialist models that are optimised for different tasks. A gatekeeper breaks down a task into components and sends them to appropriate ‘experts’ – comparable to the division of labour into specialised roles.

One of the key factors contributing to the company’s success is its approach to innovation. By making its AI algorithms and models open source, the firm is allowing developers and researchers to access and build upon its technology. This route, which is also followed by Meta, enables models to build a community of users. Being able to see a model’s source doesn’t make it copyable because development is still expensive.

The release of DeepSeek saw a sharp drop in many technology-related shares. A lot of the value lost was claimed back in the following days.

The most obvious company to focus on would be Nvidia. Nvidia sells the latest cutting-edge chips required to build bigger and more powerful models. As DeepSeek was able to produce its model with older weaker chips, investors questioned Nvidia’s prospective demand.

Other companies like Google and Meta were also perceived to be at risk because the DeepSeek model would undercut processing costs in their own models.

In a market that’s ridden high on the hopes for AI, is the edifice about to come crashing down?

What does this mean for AI?

We’ve found the analogy between the AI boom and the gold rush to be an instructive one. In the 19^th century, the promise of gold encouraged people to migrate and work to try and uncover gold. Few succeeded, but fortunes were made selling them the equipment (picks and shovels) to do so. If we view the promise of AI to be the profits that can be generated by an AI model, then that business case has indeed been dented. However, if you see the promise of AI to be the gains made from the use of AI, then the falling cost is a good thing.

The principle of the Jevons paradox applies here. Let me explain…

The Watt steam engine burnt coal more efficiently, creating fears that coal demand would fall. Instead, steam travel increased. The same has been noted in countless technological developments ever since. Therefore, more competition in the AI world should accelerate the pace of adoption. The picks and shovels of AI are the semiconductors, the data centres and maybe even the power sources.

So, at the end of this tumultuous week for the technology market, the biggest questions surround the route to monetisation for the most cutting-edge AI models, while the route to greater adoption of AI has become a little smoother.

What’s ahead?

This week, there will be more earnings from ‘Magnificent Seven’ members Alphabet and Amazon.

Purchasing manager indices will suggest the state of different economies one month into the year. Provisional estimates revealed last week suggest the manufacturing sector may be recovering, although attempts to frontload purchases before U.S. tariffs are imposed may be distorting things.

On Thursday, the Bank of England is widely expected to cut interest rates from 4.75% to 4.5%, following in the footsteps of the European Central Bank, which cut rates last Thursday.

The week will then finish with the U.S. employment report, where 150,000 new jobs are expected to have been produced during January.

But these are just the scheduled and anticipated announcements. Recent weeks have been dominated by announcements from businesses and policymakers which had not been anticipated. With the tariffs issue now moving towards the top of the agenda for businesses and maybe consumers, the President’s language will be scrutinised for any hint of how this saga is going to develop.

Please continue to check our blog content for advice, planning issues and the latest investment market and economic updates from leading investment houses.

Charlotte Clarke

05/02/2025

Please see the below article from EPIC Investment Partners detailing their thoughts on active management in the ongoing trade war concerns surrounding the US. Received 04/02/2025.  

They say that if you see a £20 note lying on the floor in a financial market, it is probably gone before you can pick it up. But, in today’s world of shifting geopolitics and evolving investment trends, that £20 note might just be sitting there, waiting for someone who is paying attention. 

Recent research by Haddad, Huebner, and Loualiche sheds light on how passive investing has reshaped financial markets. Over the past two decades, the demand for individual stocks has become 11% more inelastic as passive strategies have grown. This indicates that prices are less responsive to changes in demand, creating inefficiencies that active managers can exploit. While active investors do adjust to fill some of the gaps left by passive flows, they only offset about two-thirds of the impact. In other words, opportunities are out there for those willing to look. 

This backdrop is particularly relevant as global trade relationships face growing strain. The potential decoupling between Western economies and China, or even broader shifts in trade alliances, could lead to significant reallocations in government debt holdings and equity markets. For example, if China were to reduce its exposure to U.S. Treasuries as part of a geopolitical strategy, the low elasticity in these markets suggests that active players might not immediately smooth out price distortions. Similarly, as companies localise supply chains to mitigate tariff risks, equity markets may witness mispricing in sectors undergoing structural shifts. 

In fixed-income markets, the growing proportion of passive ETFs tracking government or corporate bonds could amplify price distortions during periods of stress. Active managers can step in to provide liquidity and capitalise on these inefficiencies. On the equity side, stocks with lower index representation, such as small caps or niche industries, may offer outsized opportunities as passive flows overlook them.

The broader takeaway is clear: while passive strategies offer simplicity and low costs, they rely on active participants to maintain market efficiency. In an era marked by geopolitical uncertainty and structural economic shifts, active management continues to show its relevance. By identifying mispricing and adapting to changing conditions, active managers can deliver value that passive strategies simply cannot. 

So here is the punchline: if you are an active investor today, that £20 note is not gone, it is still right there for the taking. And in tomorrow’s market? It might just be a £50 note instead.

Please continue to check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.

Alex Clare

05/02/2025

Please see below, an article from EPIC Investment Partners analysing the key factors currently affecting global investment markets. Received this morning – 04/02/2025

They say that if you see a £20 note lying on the floor in a financial market, it is probably gone before you can pick it up. But, in today’s world of shifting geopolitics and evolving investment trends, that £20 note might just be sitting there, waiting for someone who is paying attention.  

Recent research by Haddad, Huebner, and Loualiche sheds light on how passive investing has reshaped financial markets. Over the past two decades, the demand for individual stocks has become 11% more inelastic as passive strategies have grown. This indicates that prices are less responsive to changes in demand, creating inefficiencies that active managers can exploit. While active investors do adjust to fill some of the gaps left by passive flows, they only offset about two-thirds of the impact. In other words, opportunities are out there for those willing to look.  

This backdrop is particularly relevant as global trade relationships face growing strain. The potential decoupling between Western economies and China, or even broader shifts in trade alliances, could lead to significant reallocations in government debt holdings and equity markets. For example, if China were to reduce its exposure to U.S. Treasuries as part of a geopolitical strategy, the low elasticity in these markets suggests that active players might not immediately smooth out price distortions. Similarly, as companies localise supply chains to mitigate tariff risks, equity markets may witness mispricing in sectors undergoing structural shifts.  

In fixed-income markets, the growing proportion of passive ETFs tracking government or corporate bonds could amplify price distortions during periods of stress. Active managers can step in to provide liquidity and capitalise on these inefficiencies. On the equity side, stocks with lower index representation, such as small caps or niche industries, may offer outsized opportunities as passive flows overlook them. 

The broader takeaway is clear: while passive strategies offer simplicity and low costs, they rely on active participants to maintain market efficiency. In an era marked by geopolitical uncertainty and structural economic shifts, active management continues to show its relevance. By identifying mispricing and adapting to changing conditions, active managers can deliver value that passive strategies simply cannot.  

So here is the punchline: if you are an active investor today, that £20 note is not gone, it is still right there for the taking. And in tomorrow’s market? It might just be a £50 note instead.

Please continue to check our blog content for the latest advice and planning updates from leading investment management firms.

Alex Kitteringham

4^th February 2025

Please see below, an article from EPIC Investment Partners providing a brief analysis of the key factors currently affecting global investment markets. Received this morning – 31/01/2025

This weekend should bring clarity on whether proposed tariffs on Canada, Mexico, and China will be enforced, allowing for a better assessment of their impact on the US trade deficit. 

The US trade deficit has surged since the 1990s, evolving from a manageable issue to a persistent challenge. A monthly deficit of $8 billion in the mid-90s now exceeds $80 billion, sometimes surpassing $100 billion. Understanding its causes and evaluating policy responses is critical. 

China’s rise as a manufacturing hub has been a major driver. After joining the World Trade Organisation in 2001, China leveraged its low-cost labour force, accelerating US manufacturing offshoring. Imports from China soared, while US exports lagged, widening the trade gap. Oil imports have also played a role. Despite increased domestic production, the US remains a major crude oil importer. Fluctuations in global oil prices, driven by geopolitical tensions, further strain the trade balance. 

Beyond China and oil, trade imbalances with Mexico, Canada, and the European Union remain substantial. The automotive and electronics industries, heavily reliant on North American imports, illustrate how integrated supply chains complicate reshoring. Currency fluctuations and uneven economic growth further hinder deficit reduction. The decline in US manufacturing jobs has hit industrial regions hard, while growing reliance on foreign capital to finance deficits has driven up demand for the dollar. A stronger dollar makes US exports more expensive and imports cheaper, worsening the trade imbalance. 

Tariffs have been promoted as a solution, based on the idea that making imports more expensive will encourage domestic production. However, tariffs do not directly impact trade balance figures, as they are collected by the government. Rather than reducing the deficit, they add costs for businesses and consumers reliant on imports. Since the trade deficit is primarily driven by the gap between national savings and investment rather than the price of individual goods, tariffs often fail to yield meaningful improvements. 

Trump’s proposed 25% tariffs on Mexico and Canada have fuelled debate. While they may appear drastic, their actual economic impact will likely be limited. Many imports from these countries lack domestic alternatives. In industries like automotive manufacturing and electronics, reshoring is unrealistic. Instead, businesses will likely shift supply chains to lower-cost nations such as Vietnam, South Korea, or Taiwan, limiting tariffs’ effectiveness. 

If businesses switch imports to other countries rather than sourcing domestically, the additional cost to US consumers will stem from slightly higher prices of alternative suppliers, not the full 25% tariff. Companies may also cut costs and absorb part of the increase rather than passing it entirely onto consumers. The strong US dollar further mitigates inflationary pressure by keeping import prices low. While these tariffs may generate headlines, their actual impact on trade balances and consumer costs will likely be less than expected. 

The most effective ways to improve the trade deficit are reducing the budget deficit and weakening the dollar. A lower budget deficit would reduce reliance on foreign borrowing, easing capital inflows that push up the dollar’s value. Preventing excessive dollar appreciation would make US exports more competitive while making imports more expensive, narrowing the trade deficit. A weaker dollar would encourage domestic consumption and boost exports. Without addressing these fundamental issues, trade imbalances will persist, regardless of the level of tariffs imposed.

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Alex Kitteringham

31^st January 2025