Since President Donald Trump took office, headlines have consistently sent shockwaves through global news channels—and increasingly, through financial markets. The past few days in particular have highlighted this pattern, marked by heightened volatility and a sharp repricing of risk assets. Equity prices across the globe fell aggressively. Safe-haven assets rallied as investors fled to safety. Credit spreads widened, Emerging Market Debt and Currencies sold off, and volatility indicators like the VIX spiked. The Federal Reserve is now once again priced for rate cuts, signaling that the market sees policy risks not just as a domestic issue, but one with global implications.
Pictured : Bastian Teichgreeber, Chief Investment Officer at Prescient Investment Management
What started as a U.S.-centric market event has quickly spilled over into global assets. This is no surprise to us. In today’s interconnected world, global supply chains are deeply interwoven. The repercussions of aggressive tariff policies are not confined to the origin country; they ripple through every link in the chain. What we find particularly telling is the response of the U.S. dollar. In a risk-off environment such as this, conventional wisdom would suggest dollar strength—especially in the face of new tariffs. Yet, we’ve observed the opposite: a weaker dollar and weaker US Treasuries. This hints at a deeper vulnerability in the U.S. economy, and raises an uncomfortable possibility: that Trump’s economic nationalism could, ironically, "make America poor again."
Central to the tariff discourse is a critical misunderstanding concerning the nature of trade imbalances. The current U.S. tariff policy is fundamentally grounded in a bilateral mercantilist misconception, asserting erroneously that trade surpluses inherently represent economic vigor, whereas trade deficits signify economic frailty. This interpretation contradicts established macroeconomic frameworks. Standard current account theories indicate that trade imbalances primarily reflect a nation's internal savings and investment dynamics, rather than trade policies themselves. Typically, a nation experiencing a trade deficit is characterised by a savings shortfall relative to investment. Consequently, utilising tariffs as a mechanism to correct trade deficits can lead to inefficient resource allocation, disruptions in capital flows, and overall reductions in economic welfare.
Employing a systematic and analytical investment approach, one can categorise the Trump administration’s tenure into two distinct macroeconomic periods. The initial phase was marked by elevated market optimism, underpinned by anticipated fiscal stimulus through tax reforms, deregulation measures, and infrastructure development initiatives. These policies were initially perceived as supportive of economic growth, leading to favorable performance in risk-oriented asset classes. However, we have subsequently transitioned into a second phase, characterised by increased market apprehension. Priorities have notably shifted from tax relief towards tariff implementation, from regulatory easing towards fiscal austerity, and from facilitating skilled immigration towards enforcing stricter border control. Markets are progressively recognising that the economic repercussions associated with protectionist and isolationist measures are substantially greater than initially projected.
Forward-looking inflation indicators, such as breakeven inflation rates and inflation swaps, have recently moved lower. This comes as no surprise to us at Prescient. We have long argued that while tariffs may cause a once-off price shock, the long-term drag on growth from reduced global trade and consumer confidence exerts a much more sustained disinflationary pressure. The consumer tax implicit in tariffs acts as a brake on household spending, and as demand weakens, so too does inflation.
Following the recent market selloff, our investment strategies continue to demonstrate robust performance. We have modestly adjusted our portfolio positioning accordingly. Specifically, within our conservative Income Provider and Income Plus strategies, we have slightly extended duration by shifting bond exposures primarily from the 5-10 year maturity segment toward the 10-15 year maturity buckets. Similarly, within our dedicated Flexible Bond strategies, we have transitioned positions predominantly from the 7-year to the 15-year maturity range, effectively increasing overall portfolio duration. In our Defensive and Balanced strategies, we have likewise extended the maturity profile of our bond allocations while maintaining unchanged equity exposure. Additionally, at current market levels, we have tactically enhanced hedging strategies to mitigate potential appreciation in the Rand. Within the equity component, we have marginally increased the duration of shorter-term cover assets, thereby enhancing the effectiveness of our portable alpha strategy. Notably, the alpha contribution remained consistently positive across our equity strategies throughout the recent period of volatility. Within our global investment strategies, we have initiated a cautious and gradual transition from Investment Grade Credit toward selective High Yield Credit exposures, reflecting our systematic analysis and ongoing monitoring of global credit market dynamics.
Amid this uncertainty, our approach at Prescient continues to deliver on the promises made. As a systematic investment manager grounded in evidence-based processes, we rely on rigorous data science to guide our asset allocation and risk management. Our portfolios are diversified across risk factors, and our risk management framework limits drawdowns while leaving room to capture upside when markets recover. Our systems are designed to detect opportunity in real time and adjust exposures accordingly. It’s in times like these that our process shows its true strength. We build our process not as a perfect predictor, but as a tool to help us interpret the overwhelming complexity of global markets in a structured, repeatable way. That’s what science is about. That’s what investing should be about. Markets are always uncertain, but systematic investing allows us to remain grounded, disciplined, and prepared. We believe the future of investing lies not in speculation, but in science.
Our clients can take comfort in knowing their capital is managed not on gut feel, but on evidence, structure, and clarity.
Disclaimer:
- Prescient Investment Management (Pty) Ltd is an authorised Financial Services Provider (FSP 612).
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