Turning tariff turmoil into investment opportunities

This article was written by Richard Champion and originally published by Canaccord Wealth. 

How UK investors can capitalise on global market shifts

The return of Donald Trump to the global political stage has reignited a familiar sense of volatility in international markets. For UK investors, Trump’s wave of tariff announcements in April – dubbed ‘Liberation Day’ – has created a complex landscape of risk, opportunity and uncertainty. With sweeping duties imposed on imports from key trading partners and threats of further escalation, but then de-escalation in the face of falling markets, the implications for portfolios with global exposure are profound. On a positive note, in our view, this can present investors with more long-term opportunities than threats. Let’s discuss.

A jolt to global trade

Trump’s tariff policy, revived with characteristic fervour, initially targeted imports from China, Mexico and Canada, but then spread to even long-standing allies in Europe. The UK, while spared the most punitive measures thanks to a recently negotiated trade deal, still faces a 10% tariff on goods exported to the US. In fact, this rate could rise to 25% or even 50% if negotiations falter, and in specific sectors where agreement has yet to be reached.

For UK investors, this is not just a matter of geopolitics. The US remains the UK’s largest single-country trading partner, even though as a bloc the EU is significantly larger. Many FTSE-listed companies derive significant revenue from American consumers, so tariffs that disrupt this can ripple through earnings reports, share prices, and ultimately, portfolio performance.

Market reaction: volatility returns

The immediate aftermath of the tariff announcements saw global equity markets tumble. An estimated £6.5tn was wiped from stock markets worldwide during the most intense phase of the sell-off. While almost all of this has since recovered, the message is clear: markets are once again pricing in uncertainty.

UK investors with exposure to US equities – which make up over 60% of global equity indices – have felt the tremors, with the lurch downwards followed by that lurch upwards. The FTSE 100 has shown relative resilience, thanks to its defensive composition and global diversification, but mid-cap and small-cap UK stocks have struggled to keep up, making them an increasingly attractive entry point as a hedge against US-centric volatility. Overseas, private equity firms have been snapping them up as if they were in the bargain bucket in a supermarket.

The currency conundrum

Sterling came under pressure late last year, as investors moved into the US dollar for safety, which briefly helped UK exporters but created challenges for those with dollar-based costs or travel plans abroad. Since then, sterling has strengthened again, reducing the value of US equity returns for UK investors, but helping UK shares hold up well by comparison.

Sectoral winners and losers

Not all sectors are created equal in a tariff-laden world, so who are the winners and losers?

1. Manufacturing and industrials: These sectors are among the hardest hit. Tariffs on steel and aluminium remain in place, and uncertainty over their future is weighing on sentiment. Companies reliant on transatlantic supply chains face rising input costs and potential delays.
2. Technology and healthcare: Less exposed to physical goods trade, these sectors have fared better. Private equity firms are reportedly shifting focus towards these areas, seeking insulation from tariff shocks.

Private markets: calm before the storm?

Private markets (where investments are made directly in private companies or assets, outside public exchanges) are frequently in the news now and while they are less immediately price reactive than public equities, they are not immune. Deal flow has slowed, and sectors like automotive and industrials are seeing reduced interest from institutional investors, even as the UK has increased in attractiveness.

However, the large reserves of ’dry powder' held by private equity firms – over US$1tn in the US alone – mean that opportunities will still be pursued, albeit more selectively.

The UK government’s role

The UK government’s response has been measured but proactive. Emergency powers were used to stabilise British Steel, and a £500m deal with Network Rail has provided a lifeline to the domestic steel industry. Meanwhile, policy shifts – including pension reforms and ISA rule changes – are aimed at channelling more capital into UK equities, particularly small and mid-cap stocks, even as we appreciate the amazing quality of the largest US and European companies.

For investors, these developments offer both reassurance and opportunity. A more supportive domestic policy environment could help offset some of the external shocks emanating from Washington.

Vulnerabilities and investment opportunities – stress testing portfolios

In this environment, the old adage holds true: don’t put all your eggs in one basket. After the horror year of 2022, when both equities and bonds fell in value together – an outcome not seen since the early 1970s – UK investors are reacquainting themselves with the attractions of diversified, multi-asset portfolios. These blend exposure to US equities with defensive holdings such as gilts, infrastructure, healthcare and real assets (like real estate, natural resources and commodities).

Scenario testing has become vital in the tariff turmoil. We are modelling various outcomes, from a full-blown trade war to a negotiated compromise, to stress-test portfolios and identify both vulnerabilities and opportunities. The goal is not to predict the future, but to be prepared for it.

At Canaccord Wealth, our team only invest in active fund managers following extensive quantitative analysis and qualitative due diligence in order to maximise the probability of our fund selection adding real, long-term value.

While Trump’s tariff policies have undoubtedly introduced fresh risks, they also present opportunities for the discerning investor. Market dislocations often create mis-pricings, such as undervalued assets, distressed sellers, and overlooked sectors.

UK small caps, for instance, are trading at attractive valuations and offer strong earnings growth potential. With limited direct exposure to US tariffs and a more domestically focused revenue base, they could be a bright spot in an otherwise cloudy outlook, although they are only suitable for clients with a greater level of risk appetite.

Similarly, income-generating assets, from dividend-paying equities to infrastructure funds, remain appealing in a world where capital preservation is once again top of an investors mind.

Staying the course through geopolitical uncertainty

The Trump tariff turmoil is a reminder that geopolitics and portfolio management are inextricably linked. While the headlines may be dominated by trade wars and political brinkmanship, the underlying principles of sound investing remain unchanged: stay balanced, diversified and flexible. Look to buy good quality assets at reasonable prices and take a long-term view.

In times of uncertainty, adaptability is the most valuable asset. And for those willing to look beyond the noise, there may be silver linings amid the storm clouds.

Any questions?

If you have any questions about the current market and economic environment or your asset allocation within your portfolio, please get in touch with us.

For further information on any of the terms used in this article please see our glossary of investment terms.

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The tax treatment of all investments depends upon individual circumstances and the levels and basis of taxation may change in the future. Investors should discuss their financial arrangements with their own tax adviser before investing.

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