Markets became nervous that the new president’s 25% tariff on imports from Canada and Mexico and 10% levy on Chinese goods could trigger a trade war that would alter global trade dynamics.

Gold’s price reached £2,275 per ounce today (3 Feb), up from £2,103 at the beginning of January.

Funds such as Baker Steel Gold & Precious Metals, Jupiter Gold and Silver, and BlackRock Gold & General benefited the most from this surge in demand, beating all other Investment Association funds with total returns of 17.4%, 17.3% and 16.6% in January.

See also: Global markets fall as Trump tariffs spark trade war concerns

Following close behind them was Charteris Gold & Precious Metals, Quilter Precious Metals Equity, and Ninety One Global Gold, which were up 16.3%, 16.2% and 16.1% respectively throughout the month.

And gold’s rally could have further to climb yet, with many unknowns still lingering over how the affected countries may react – not to mention the nations that could yet have tariffs placed on their goods.

Russ Mould, investment director at AJ Bell, said: “The prospect of a full-blown trade war has spooked investors as they weigh up the prospect of widespread retaliation by countries on the receiving end of Donald Trump’s tariff frenzy,”

“Affected countries aren’t going to take the hit lying down and a tit-for-tat scenario is now looking real. That could result in higher inflation and put a stop to further interest rate cuts for the time being – exactly the opposite of what equity investors want to happen.”

See also: Baillie Gifford drops sustainable tag from £159m monthly income fund

On a sectoral level, IA Latin America had the best month in January, rising 11.4% on average thanks to its high exposure to commodities. Funds in the sector collectively hold over a third (35.3%) of their assets in basic materials and industrials.

But IA Latin America’s strong month could be short lived, according to Ben Yearsley, investment director at Fairview Investing. After being the worst performing sector of 2024 (falling 25% on average), last month could be a “dead cat bounce,” he said.

India delivers worst returns

Commodity portfolios may have had a strong start to the year, but IA India funds suffered the worst returns in January as the nation forecast its slowest economic growth in four years.

The latest Economic Survey projected gross domestic product to grow by 6.3% to 6.8% over the coming year, down from 8.2% last year.

Funds in the IA India sector fell 5.2% on average throughout January, with some dropping further than others.

Invesco India Equity was the worst performing fund of the month, with returns dropping 10.6%. It was followed by Ashoka Whiteoak India Opps and Comgest Growth India, which fell 9.6% and 9% respectively.

The measures, announced by US President Donald Trump over the weekend, see a 25% tax placed on goods from Canada and Mexico, and 10% on imports from China.

In response, Canada has already announced a tariff on US goods while Mexico and China are also expected to retaliate.

At 11:45am, the FTSE 100 had fallen 1.2% since the start of the day’s trading, following similar falls overnight in Asian markets.

See also: GAM Investments hires Janus Henderson management trio

Richard Flax, CIO at Moneyfarm, says investors are increasingly concerned that these moves could trigger a cycle of retaliatory tariffs, escalating into a full-scale trade war.

“With the new administration taking a more aggressive stance than some had anticipated, markets are now reassessing his previous rhetoric to anticipate the administration’s next steps,” he says.

“The president has long held the view that import tariffs could help fund the federal budget as an alternative to raising taxes. Now, emboldened in his second term, his administration appears more determined to pursue this strategy, having taken a more measured approach during his first term.

“The initial market rally following Trump’s re-election was driven by optimism over deregulation, with investors largely downplaying the risks of protectionist policies. However, the rapid implementation of tariffs – including those targeting key allies – has forced markets to consider the economic consequences.”

He added attention will now shift to Europe, following Trump’s comments that tariffs on the EU are “definitely happening”.

“For American consumers, these tariffs are expected to be inflationary, exacerbating the financial strain from the high inflation seen between 2022 and 2023. These moves also raise questions about the Federal Reserve’s ability to cut interest rates in the near term. Given the heightened uncertainty, the Fed is likely to hold rates steady, opting to assess market conditions before considering any adjustments.”

PA event: PA Live: A World Of Higher Inflation 2025

According to AJ Bell investment director Russ Mould, markets had assumed that Trump would talk tough on tariffs before backing off when he got a deal. Therefore, his plan to act first and then talk has come as a “nasty surprise” to share prices around the world.

“Trump’s launch of tariffs in 2018 did raise revenues for America but US corporate profits took a hit that year and America’s S&P 500 index fell by a fifth, so markets have understandably taken fright this time around.

“Weirdly, stockmarkets have begun Trump’s second term in boisterous form, in marked contrast to 2016’s election result when they approached the Republican candidate’s win with caution. Ultimately, the S&P 500 gained 56% during Trump’s first term, but that came with a big wobble in 2018, when the index lost 5% overall and endured a mini bear market in the autumn, as threats of tariffs on China became reality.

“America’s tax take did benefit, as customs duties doubled in short order. The tattered state of US federal finances, where the debt is far higher now and the interest bill is surging, means this offers some good news, from an American perspective.”

Major European energy firms are poised to offer “big strategic value” as the world transitions towards decarbonisation, according to JOHCM’s Ben Leyland.

Leyland, who co-manages the JOHCM Global Opportunities fund alongside Robert Lancastle, cited UK oil giant Shell as being primed to benefit from this long-term theme over the next decade and beyond. Shell currently accounts for a 3.3% weighting in the fund, according to its December factsheet, marking it as the seventh-largest position within the 39-stock portfolio.

“What we’re really interested in is the need to invest in energy infrastructure over the next 10 to 15 years, and to move energy infrastructure broadly in a decarbonised direction,” he explained.

“It’s not about taking clear views on whether this is solar, wind, renewables or nuclear – or on whether carbon capture and storage, or hydrogen technologies, are the next big thing. These have their moments in the sun and then dissipate.”

In terms of European energy majors generally, Leyland said they tend to focus more on ‘midstream’ and ‘downstream’ opportunities as opposed to ‘upstream’. ‘Upstream’ refers to the exploration and production stages, while ‘midstream’ includes storing, processing and transporting oil, natural gas and gas liquids. The ‘downstream’ stages involve refining crude oil into fuels.

Leyland explained: “The recent action to launch US energy measures has been to double down in upstream.

“What we like, particularly when it comes to Shell, is that while they do have upstream [capabilities], the real value of the company is the midstream and downstream assets, which ultimately are going to have
big strategic value in the transitioning world.”

He added that Shell’s gas-trading division is also attractive, which was supplemented by the firm’s £47bn acquisition of gas exploration firm BG in 2015.

“There are multiple positives. The fact that LNG [liquefied natural gas] is a tradable transition fuel to help the world towards the decarbonisation agenda is one. Also, the fact Shell is paring back its downstream assets and moving its refinery hubs towards areas such as Rotterdam.

“These areas are well located in that they are industrial hubs for other hard-to-help sectors. So, steel-making or cement companies, which are going to find it very difficult to meet all of those net-zero targets – they are going to need technologies like carbon capture and storage in order to make those commitments real.”

Leyland added that Shell is one of the largest petrol station forecourt providers in the world. According to the company’s website, it has 40,000 forecourt locations across the globe as well as an additional 10,000 partner sites. In the UK, Statista figures show that Shell has the second-highest percentage of forecourts at 13.9%, second only to Esso at 15.2%.

“It’s up to [the consumer] whether they buy a petrol, diesel or electric [car], but at some stage, if we’re going to go down the EV route, we’re going to need charging stations for that. As the strong become stronger, the large will become larger. The tail of smaller companies, which cannot make that transition as effectively, is going to start atrophying.

“So this, alongside the strategic value of its midstream and downstream assets to help the energy transition, is what we think will help Shell generate strong returns.”

‘Where profit and purpose go hand in hand’

Nubank and Grab are two stocks which are tackling significant global challenges but are also set to generate strong long-term returns, according to Baillie Gifford’s Rosie Rankin.

The investment specialist director said Brazilian firm Nubank, which is held within the firm’s £1.9bn Positive Change fund, is one of the world’s largest digital banks. Currently headquartered in São Paulo, the Russell 1000 component was founded in 2013 and has more than 7,000 employees. According to a Bloomberg report in November, however, the bank’s parent firm Nu Holdings is considering moving its legal base to the UK.

“[Nubank] was founded with the intent of providing an alternative to the relatively expensive traditional Brazilian banking system,” Rankin explained. “When we first invested, it had around 58 million customers in 2021. Fast forward to today, and that’s around 100 million customers.

“It is incredible growth in a relatively short period of time, and that’s because it’s offering products and services that are really useful to micro and small enterprises.”

Seven out of 10 new jobs created in Brazil are now within micro and small enterprises, according to Rankin, meaning the ability to access affordable banking products easily is an “important driver for change”.

Similarly, an impact stock capitalising on the growing digitalisation across emerging markets is Grab, which she describes as a “southeast Asian super-app”. “Its core businesses are ride-hailing and restaurant delivery, but it does a whole range of stuff, from delivering packages and groceries to e-wallets and financial services. As a result, it has managed to build up a really impressive market share.”

Grab Holdings, which is based on One-North in Singapore, operates across Malaysia, Indonesia, Myanmar, Thailand, Vietnam, the Philippines and Cambodia, as well as its home market.

Hailed by Reuters as the biggest technology company within the south-east Asian region, the company was founded in 2012 and floated on the Nasdaq in 2021, following a SPAC merger with US investment firm Altimeter.

According to Rankin, Grab currently accounts for 70% of the entire ride-hailing market, within around 5% of adults in south-east Asia using the app at least once per month. “That means 95% don’t, so there’s huge potential there in terms of growing the number of users,” she reasoned. “And because it’s so innovative in developing technology solutions, it has been a real magnet for attracting tech talent.”

Rankin added: “Grab has many different services via its app, but they’re united by that one purpose of helping to improve lives and prosperity within south-east Asia. And so, ultimately, it’s a great example of a business where profit and purpose will go hand in hand.”

Through the lens of luxury

Investors shouldn’t give up on luxury goods stocks despite lacklustre results from the sector, according to senior analyst at Killik & Co Mark Nelson, who said the firm’s managed investment service team is taking “a defensive approach” to these types of companies.

“Luxury stocks have been getting a lot of attention of late, with softness in the market being largely driven by the continued weakness of the Chinese economy,” he explained. “The current predicament raises two big questions for investors: is there a long-term structural issue in China and, if that is not the case and it is just a cyclical downturn, when will the good times start to flow again?”

One stock the team owns shares in is Franco-Italian eyewear company EssilorLuxottica, which Nelson said combines a medical device business through its lenses, with a luxury goods one through its frames.

“[It] plays to the structural trend of the growing need for eyecare due to the increasing prevalence of eye conditions among the growing population due to changing lifestyles and demographics. Management has stated that 75% of revenues are vision care-related and therefore less discretionary in nature.”

Generally speaking, the team at Killik doesn’t think the slowing luxury demand in China is structural, despite the fact many investors are drawing comparisons between China and Japan in the 1980s. “While there are similarities such as ageing populations, there are some key differences, too,” Nelson pointed out. “For a start, there remain millions of people who have not yet reached middle-class status in China, and it is this emerging middle class that has been a key driver of luxury goods demand.

“China is an ambitious nation, with grand geopolitical goals which we believe are more likely to be achieved with a prosperous population and a growing middle class. We therefore expect the Chinese government to do whatever it takes to provide the economy with the necessary support in pursuit of these goals.”

In terms of when the performance of the luxury goods sector will turn around, the analyst said this is “much trickier to predict” but that there are “early causes for optimism”.

“China does seem to be making significant attempts to re-ignite the economy via stimulus measures. Additionally, the easing of the interest rate cycle in the developed west should be supportive of increased demand for those markets,” he reasoned.

“Finally, Trump’s election in November’s US election is being seen as a positive for the sector overall, with lower taxes and a currently buoyant stockmarket,both positive for the wealth effect and, in turn, luxury demand in the US.”

Not only this, but lower valuations in the sector could make it ripe for M&A deals, according to Nelson, with Italian luxury fashion brand Moncler allegedly interested in acquiring British fashion house Burberry.

This article first appeared in the January issue of Portfolio Adviser magazine

Equities in the US continued to defy gravity in 2024, rising 26% in sterling terms to back up a 19% increase in 2023.

As we move into 2025, some of the economic tailwinds that propelled the market higher in 2024 are receding. The rate of monetary policy easing is slowing, inflation has become sticky, long-term interest rates have swung upward, and the US economy is slowing.

Even more importantly from a sentiment standpoint, spending on artificial intelligence hardware is moderating.

Brian Colello, an equity strategist for the technology sector at Morningstar, said: “Spending on AI graphic processor units and hardware is less likely to provide anywhere near the massive positive surprises we saw in 2024 as this fast-moving megatrend is better understood.”

This time last year, I described the US equity market as running not too hot, and not too cold. Following the 2024 rally, the backdrop today is somewhat different with valuations above long-term averages, putting more pressure on US companies to deliver on their earnings forecasts.

But the biggest wild card in the first quarter will be what President Donald Trump may or may not do regarding his assertions to implement new tariffs on imports.

How much of this tariff talk is campaign trail rhetoric? How soon will these tariffs be implemented? How big will they be? What countries and products will be taxed? And just as importantly, what countries and products may be excluded?

If we look back at Trump’s pledges from his past presidency, of the 100 or so promises he made to the electorate in 2016, around 25 were enacted, another 25 came to pass but with amendments, and around half never made it to legislation.

As ever, it is helpful to assess what is priced into US equities via the intrinsic valuations of the more than 700 stocks that trade on US exchanges. Our estimates show a 4% premium to our fair value estimates.

While this might not sound like much of a premium, the market has traded at this premium level or higher less than 10% of the time since the end of 2010. With the market trading at the high end of our fairly valued range, we are becoming progressively cautious, and positioning is increasingly important.

There are areas of interest in the US, despite this headline valuation. Our assessment of small-cap stocks are they trade at a 14% discount to fair value.

There is also divergence across sectors.

Real estate was the second most undervalued and, following a sluggish 2024, is now the most undervalued.

By contrast, Utilities was one of the more undervalued sectors coming into the year. In 2024, the sector rose almost 27% as utilities became a second derivative play on AI growth; AI requires multiple times more electricity than traditional semiconductors. As such, it is now one of the more overvalued sectors.

This last fact could impact your view on infrastructure equity funds which are popular among asset allocators in the UK.

As the Chinese zodiac turns to the Year of the Snake, investors are left wondering what the new year holds for its equity markets.

Traditionally associated with wisdom, strategy, and adaptability, the snake offers a fitting metaphor for navigating the twists and turns of China’s economic landscape and geopolitical environment.

Trade war with Trump

China’s growth paradigm since late 2020 has been a two-speed model – a very strong export machine with poor domestic consumer demand. Its trade surplus hit a record high of about $1trn in 2024, while its 10-year government bond yield hit a record low of 1.6% with its economy trapped in a deflationary cycle with weak consumer confidence.

President Trump’s re-election and the prospect of a new trade war will threaten the sustainability of export growth, as exports to the US account for about 3% of China’s GDP.

How the forthcoming trade war is fought matters a great deal. A modest and gradual increase in tariffs is unlikely to derail export growth, but a strong and swift tariff increase scenario would put considerable pressure on economic growth in the foreseeable future.

The range of outcomes is very wide, and the path to the end game is highly uncertain. Investors need to stay agile and prepared for volatility and opportunities.

Bolder fiscal stimulus

The narrative changed significantly after the critical policy pivot in the last week of September 2024. While this was seen as an inflection point in stimulus policy, the follow-through so far has fallen short of investors’ expectations.

A crucial reason for the lack of a big bazooka so far is that policymakers don’t yet know which one to bring out. The size of the bazooka is dependent on the severity of the trade war.

As Trump prepares to fire his initial shots after being formally sworn in, they will assess and adjust the size of the stimulus accordingly, and the National People’s Congress in March will offer a timely occasion for them to do so.

Much bolder fiscal stimulus focusing on boosting domestic consumption would improve consumer confidence and rekindle the animal spirits.

Capital market reform

One policy directive that investors have not paid enough attention to are Beijing’s plans to “invigorate the capital market” by “using the capital market as a lever (to boost economic recovery)”. A better and more efficient capital market serves to achieve two important goals. 

Chinese households firstly need a new avenue to store, invest, and grow wealth. This role was previously fulfilled by the property market.

House ownership is high, and 60% of household assets sit in property. The best days of the property cycle are behind us, and the negative wealth effect of the property downturn is hurting consumers’ willingness to spend.

A deep, efficient and transparent domestic capital market with a strong pool of high-quality public companies that can deliver good long-term shareholder return is a very convincing and much needed alternative.

Another important problem that needs fixing is the state-owned banks’ ineffective and wasteful lending driven model, which is no longer fit for purpose in a technology and innovation driven stage of growth.

The bank lending model works fine when growth is driven by funding manufacturers with tangible plants and equipment. However, when the new sources of growth are mostly in innovative industries with more intellectual property and intangible assets, a deep capital market with sophisticated risk takers from venture capital, private credit and equity, and patient long-term institutional investors plays a much more important role in allocating capital efficiently.

China’s efforts to reform its capital market would improve corporate governance, raise the quality of listed companies, and in turn, boost shareholder return.

Stimulus policy is more important than trade war

Trump’s recent re-election brings the trade war narrative back to the forefront of many investors’ minds. The Year of the Snake is going to be a tug-of-war between domestic policy stimulus and the trade war, which will bring plenty of good investment opportunities that may come with some manageable volatility.

How policymakers will apply  stimulus policy tools to boost consumer confidence to fight deflationary pressures, and respond to the trade war and its impact on export growth is the most critical driver of equity market returns in China.

The policy pivot at the end of September 2024 was a critical turning point. It signalled that at long last, the policymakers acknowledged the long-term damage of the deflationary pressure and poor consumer confidence and signalled their willingness to fight.

In essence, this put a floor on economic growth and asset prices. What remains to be seen is whether the policy goal is to merely arrest the downturn or to get the economic engine humming again.

A trade war would undoubtedly put pressure on external demand growth, but it could also serve as a much-needed final kick that policymakers need for unorthodox and bolder reflationary stimulus policies, which is a more important driver for asset prices in China.

Despite a year of analysis of what a second Trump term will mean for markets, the only market consensus seems to be that the future is unclear. Trump is a tricky test subject: the claims he made during his first campaign turned out to be more bargaining chips than promises, and a revolving door of cabinet members made for constant adjustments in policy. And a second set of questions come in how these policies will actually impact markets once put in motion.

This time around, Trump has kept to many of his favourite platitudes, including stricter immigration policies and a barrage of tariffs, but has also aligned himself with the tech world, specifically with the appointment of Elon Musk to head the new Department of Government Efficiency. He also faces an ongoing war in Ukraine that has shaped the European economy, which he claimed he would end before even taking the Oval Office. This promise has proved to be untrue.

See also: Will Trump’s return to the White House derail the green agenda?

While Trump works as an erratic force in the Oval Office, markets found more stability in his selection for Treasury, investor and hedge fund manager Scott Bessent.

Russ Mould, investment director at AJ Bell, said: “Markets are eagerly awaiting Trump’s first batch of executive orders as this will provide clarity on the lay of the land. Immigration, energy and trade will be high up the list and, as always, the devil will be in the detail. Trump has had a lot to say on these issues but he also has a reputation of not always following what he’s promised to do to the letter.”

Tariff policies

Tariffs have been the center of attention in the lead-up to Trump’s second presidency, as markets attempt to understand how literally to interpret his claims. Trump has claimed he will put in place tariffs between 10% and 20% for all imports to the US, and 60% to 100% for imports from China.

“Markets want to know which countries and industry sectors will be targeted and the relevant tariff rates to price in any risks or opportunities to equities, currencies and bonds around the world,” Mould said.

“Trump is likely to have a much greater influence on markets than Joe Biden due to his punchier policies and unpredictable nature. Investors should strap themselves in, as this situation implies much greater swings up and down for share prices, currencies and other asset classes.

See also: PA Live A World Of Higher Inflation 2025

Patrick O’Donnell, senior investment strategist at Omnis Investments, said in addition to the obvious effects on China, policy could be particularly punchy for Europe.

“The initial emphasis is going to be on China but also on Europe. Recent sound bites from the administration are floating the idea of a middle ground between a broad-based tariff on everything and selective tariffs on Chinese manufactured goods. This is softer than what we heard on the campaign trail, but the precise details will matter for investments as we move through 2025.”

The US will not be immune to the tariff policies it puts in place, with many economists believing it will lead to a further increase in the price of goods for US consumers. But Cathie Wood, CEO of ARK Invest, sees an alternative if the tariffs are handled with care.

“Uncertainty during the transition could add to the wall of worry that has kept the markets on edge recently. Will tariffs trigger another bout with inflation? We think not: instead, those tariffs should be selective and incremental, their discrete effects ultimately displaced overwhelmingly by tax cuts, deregulation, and dollar appreciation,” Wood said.

“Indeed, we believe the market is likely to discount a successful Trump Administration, which could turn out to be one of the most successful administrations since the Reagan Revolution.”

The risk of inflation

One of the longer-term concerns that comes with Trump’s term is the inflationary nature of many of his policies. In addition to the possibility of higher prices due to tariffs, strict immigration policy could have an inflationary effect by driving up the cost of labour. The Federal Reserve has reevaluated its easing plans for 2025 in light of the possible policies, and treasury yields sit at a 14-month high.

The economic impacts for the US will also become more clear as tax policy unfurls. But O’Donnell says much of this will come down to what can be passed in Congress, which is less unified than in Trump’s first term.

See also: How will Trump’s tariffs impact markets?

“An extension of the Trump 1.0 tax cuts is widely expected but the politics this time are much more difficult than in the first administration which may make it more difficult to pass further tax cuts. The majority in the House of Representatives is much thinner this time round and the members tend to be less disciplined than in the Senate,” O’Donnell said.

“Overall, uncertainty is likely to remain high over the next year and whilst we think the net impact of the new policy initiatives are likely to be well received by markets, the risks are elevated.”

If the policies are passed, Wood said the equity market could be put in a comfortable position.

“Trump Administration is likely to convince Congress not only to preserve the tax cuts scheduled to expire by year-end, but also to cut other business and individual tax rates and deregulate industries in which large corporations have armed lobbyists and benefitted from “regulatory capture” at the expense of small- to mid-sized companies,” Wood said.

“As a result, the bull market in equities is likely to broaden out from just a few cash-rich, large cap stocks to a broad swath of stocks that have been hampered by the supply shocks, the record-breaking burst in interest rates, and the rolling recession that have characterized the last four years.”

Is it time to make decisions?

The lead-up to inauguration day has been long, first with uncertainty of who would be president, and then with uncertainty of what that presidency would bring. But just because the day has arrived, not all believe it is time for major changes.

While much policy is squeezed into the first 100 days of presidency while momentum is high, another 1,361 days will still remain. And the advent of Trump is hardly the only influence on markets across the next four years.

“This economic cycle is relatively long in the tooth, there is a relatively structural large fiscal deficit, inflation risks are still present, economic activity outside of the US appears subdued with political issues in Europe. We expect markets to remain volatile, and not just because of social media posts from the oval office,” O’Donnell said.

Nina Stanojevic, senior investment specialist at St. James’s Place, also reminds that changes in political leaders have not necessarily been the bellwether for economic change in the past.

“With the presidential inauguration taking place today, we recognise the significance of this transition and its potential impact on the markets and economy,” Stanojevic.

“Despite the uncertainty surrounding the future direction of the new administration, investors should avoid making any immediate portfolio adjustments in response to this political development. Historically, markets have shown resilience across political transitions. Reacting to short-term political shifts introduces unnecessary risk and often undermines long-term returns. Investors should remain disciplined and avoid reactionary moves that could detract from sustained growth.”

Managers Ankur Crawford and Patrick Kelly built a concentrated portfolio of just 48 stocks, with much of its allocations focused on five tech companies. Tech behemoths such as Amazon, Microsoft, Nvidia, Meta, and Applovin account for the top 39.1% of the fund and drove most of its performance in 2024, according to its latest annual report.

These thriving tech giants were a source of high returns for many investors in 2024, especially Nvidia. Its soaring share price in recent years has made it a market darling, but Nvidia’s 179.2% increase in 2024 appeared mild compared to Alger Focus Equity’s fifth-largest holding, Applovin.

The mobile marketing technology company’s share price rocketed 751% last year, boosting the fund’s total return well ahead of other IA North America funds.

Alger Focus Equity has been a stand-out winner over the long-term too, boasting to be the fifth best-performing fund in its peer group since launching in 2019. Its total return of 193.7% over the period places it 80.3 percentage points ahead of the sector’s average return of 113.4%.

Other IA North America funds with an overweight in tech – and high allocations to Applovin – were also among the best performing portfolios of 2024. The Alger American Asset Growth and Lord Abbett Innovation Growth funds also delivered supercharged returns last year, climbing 50.6% and 45.9% respectively.

However, while US equity funds may have taken the top spots, it was portfolios in the IA Financials and Financial Innovation sector that delivered the highest returns on average. Funds in this group increased investors’ returns by 24.3% in 2024, whereas IA North America grew them by a slightly milder 22%.

The Janus Henderson Global Financials fund was the best performer in the sector, soaring 34.2% throughout the year, with Xtrackers’ MSCI USA Financials and MSCI World Financials ETFs following closely behind with returns of 22.6% and 29.1% respectively.

The sector benefited from high interest rates, reasonable economic growth and moderating inflation in 2024, as well as a surge in share prices following the re-election of Donald Trump in the US, who pledged to deregulate the sector.

Best performing sectors of 2024

Source: FE fundinfo

Nevertheless, investors did not need to look solely at financial funds or those exposed to tech-heavy US equities for the highest returns. The second-best performing portfolio of the year was dedicated to a more niche corner of the market – European emerging markets.

The JPM Emerging Europe Equity fund soared 53.9% throughout 2024 with a portfolio consisting mostly of Russian equities, which accounted for 67.7% of the fund’s assets.

Fairview Investing director Ben Yearsley speculated that this fund may have been another beneficiary of Trump’s victory, as the president-elect frequently vowed to force a resolution between Russia and Ukraine during his election campaign.

The best performing funds of 2024

Source: FE fundinfo

Another specialist fund to top the charts was the WisdomTree Blockchain ETF, which generated some of the highest returns in the Investment Association universe last year (up 44.5%) by investing in cryptocurrency technologies.

While prone to sharp turns in performance, crypto markets ended 2024 on a high as one of its leading currencies, Bitcoin, surpassed $100,000 for the first time.

This rally was again driven by Trump’s election victory, with the incoming president expected to take a more laxed approach to crypto regulation than the Biden administration. He has already appointed crypto advocates such as Elon Musk, Paul Atkins, and Howard Lutnick to influential positions within his new administration, who could influence Trump’s policy direction.

Investors are on edge, grappling with uncertainty on multiple fronts as the US election fast approaches. With the outcome seemingly hanging in the balance, the potential impositions of blanket tariffs from a Trump presidency on all trade is concerning many. Such a move could spell trouble for the global economy, bringing potential implications for long-term geopolitical stability and fiscal discipline.

One significant tail risk we are monitoring is the impact of the US fiscal balance sheet. At around 4%, treasury yields are not overly concerning, but they reflect some uncertainty. While we do not anticipate a UK-like event in the US — a major bond sell-off akin to the Truss mini-budget moment — continued volatility in the bond markets leading up to and potentially beyond the election is likely.

While it is notoriously difficult to predict election results, and therefore subsequent policy of future administrations, the possibility of a Trump presidency focused on additional fiscal expansion and deregulation could push inflation higher, raising the yield of long maturity bonds as investors price greater long-run uncertainty in US bond markets. This ripple effect could inevitably be felt across the broader global bond market, as the US remains the benchmark for global fixed income.

See also: Morningstar: What does the US election mean for investing in China?

The potential imposition of blanket tariffs by Trump is especially concerning. While this could give a short-term inflationary boost to industries such as traditional energy, financials and defence, it could be disastrous for global growth over the long term. Take tariffs on China as an example. These have already led to a decline in US-China trade over the past few years and increased trade deficits with other countries. This rebalancing effect of blanket tariffs on US trade partners would complicate global trade dynamics.

The US economy has been sending mixed signals in recent months. The challenge lies in the core components of inflation, which seem inconsistent with the cut of over 1% the market expects from the Federal Reserve in the next 12 months. This creates a dilemma for the Fed, which must balance lowering inflation with a strong but potentially weakening labour market.

Historically, equity markets have shown more volatility during close and contentious elections. Given polling data indicates a tight race hinging on a few swing states, such uncertainty could spur heightened market volatility as investors react to polling trends and shifting political dynamics. While markets tend to calm after an election, investors should not assume smooth sailing in the immediate aftermath.

Policy changes, particularly those related to fiscal spending, taxation and regulation, could significantly impact sectors such as technology, energy and healthcare. leading to heightened market volatility as investors react to polling trends and shifting political dynamics.

Despite the noise, investors should remain steadfast: focusing on long-term fundamentals and preparing rather than predicting. Forecasting market responses to elections or economic data is fraught with risk. But discipline is needed — diversifying portfolios, managing risk and avoiding overreactions to short-term market moves.

While the election presents both short-term risks and opportunities, in line with past elections it is unlikely to have an impact on the medium-term expected returns of asset classes, but will stir potential short-term challenges.

While global bond yield curves may steepen globally pushing up longer term interest expectations, bonds remain an attractive asset class to hold with fears remaining around economic growth. We may also see volatility in equity markets as traders react to each other post-election, focus should be on the medium-to-long-term fundamentals — such as earnings and the discount rate — that will drive equity returns and ultimately client outcomes.

See also: Weekly Outlook: US election, UK and US interest rate decisions

Currency markets are also an area that may see volatility, especially if election results are delayed in swing states. However, we see little immediate threat to the US dollar’s status as the world’s reserve currency. Despite speculation, neither the euro nor renminbi are poised to replace the dollar.

Investors therefore should assess any risks within their portfolio and ensure they are resilient to adverse outcomes, while remaining flexible to seize opportunities that may arise during periods of extreme market stress.

Whether we face a Trump 2.0 presidency with potentially higher inflation or a Harris-led government which would likely be more of a continuation of the current administration, it is important to ensure that portfolios are diversified and robust.

By maintaining a disciplined, medium-term view and avoiding being swayed by the noise, investors can navigate the election with confidence, focusing on fundamentals rather than short-term volatility.

This article was first seen in our sister publication, PA Adviser

China has a knack for surprising the world, and recent developments have underscored the country’s accelerating technological capabilities.

While much of the global attention remains on the role of the US in the tech industry, China’s tech ecosystem is advancing rapidly, signaling a shift in global dynamics – even despite the 60% import tariff Trump has vowed to place on Chinese goods.

Catalysts for reflection

The proposed levy may not stunt tech’s growth in China, with Huawei recently releasing its Mate 70 Pro, a device that challenges conventional views about Chinese innovation and the global tech landscape.

Powered by HarmonyOS Next – a fully homegrown operating system – and a domestically produced chip, the Mate 70 Pro represents a significant step in China’s push for technological self-reliance. The chip, produced without reliance on Taiwan’s TSMC, demonstrates capabilities, such as near-5G performance, that were once thought to be years away for China.

Despite external pressures from US export controls, these challenges appear to have spurred China’s progress, showcasing a maturing domestic tech ecosystem. The Mate 70 Pro exemplifies China’s increasing independence in the tech space, signaling that it is no longer reliant on foreign supply chains to compete at the highest levels.

See also: How will Trump’s tariffs impact markets?

China’s drive for self-reliance extends beyond hardware to artificial intelligence. Alibaba’s Qwen, which launched QwQ, has made strides with a compact reasoning model that competes with larger counterparts.

At one-fifth the size of OpenAI’s GPT-3, QwQ demonstrates that efficiency and smaller models can be effective, challenging the idea that size directly correlates with capability. This progress shows that the gap between Chinese and American AI may not be as wide as many have assumed.

These advancements are underpinned by significant investments in education and human capital. With a substantial portion of Chinese graduates specializing in STEM fields, China has cultivated a pipeline of talent that is well-positioned to lead in industries requiring advanced technical expertise, such as AI, semiconductors, and renewable energy.

American decoupling

China’s rapid advancements, from the Mate 70 Pro to breakthroughs in AI and autonomous technologies, raise questions about the effectiveness of the American decoupling strategy.

While tariffs and restrictions aim to protect domestic industries, they risk insulating those industries from competitive forces that drive innovation.

See also: Will Trump’s return to the White House derail the green agenda?

Shielding industries from global competition could create a complacency risk, while China continues to leverage challenges as opportunities.

The broader trade landscape

Recent tariff proposals have brought trade issues into sharp focus. New proposals targeting key trading partners, including Canada, Mexico, and China, are aimed at addressing a range of global concerns.

While these tariffs might disrupt supply chains and increase costs in certain sectors, they also underscore how trade policy and tariffs continue to shape global economic interactions.

The global monetary system is another area where shifts are taking place. The growing discussion around alternative currencies by some international groups suggests that the landscape is evolving.

Tariffs and trade policies, while reinforcing the economic position of certain nations, can have ripple effects across global economies. As countries explore alternatives to traditional financial systems, the US strategy may need to consider these dynamics carefully.

Yet one piece of the States’ future seemed set in stone long before the next president was elected: US debt would rise. Under Trump, debt is expected to grow by more than £7.5bn. As of October, it had ballooned to over $35.85trn (£28.35trn), and in the past decade, US debt has grown by almost $18trn.

While mounting US debt has been a perennial topic of discussion, there has been little in the way of consequences so far. The country hit its debt ceiling in January 2023, and in June of that year, lawmakers opted to suspend the debt ceiling until January 2025. Raising or suspending the ceiling is far from an uncommon practice for the US government: since 1960, it has been increased 78 times.

Gradually, and then all at once

How long this trend can continue, and when consequences will arise, is unclear to most investors. Some believe the timeline could be around a decade. Rob Perrone, investment counsellor at Orbis Investments, says this is the nature of how debt issues occur on most scales: gradually, and then all at once.

“The way governments get into debt trouble is similar to bankruptcy,” he explains. “How do you go bankrupt? Gradually, then suddenly. Nobody rings a bell when you start to get into debt trouble, it builds up, and then things start to fall apart.”

By the end of the fiscal year 2023, the US-debt-to-GDP ratio was 97%, according to the Bureau of the Fiscal Service. It is now estimated to be around 100%, projected to grow to 120%. Perrone says the issue lies in how debt can spiral. This happens as governments issue additional bonds to “plug the gap” of the debt, but it grows as interest rates come into play.

See also: Macro matters: The Mexican wave

“At the moment, the US government is paying 3.3% interest service cost on the debt they have already. The entire treasury curve is above that. So, whatever they’re issuing – five- , 10-, or 30-year debt – just to roll over the existing stock of debt is going to attract a higher interest rate,” Perrone adds.

“You have the debt pile getting bigger and the interest rate on new debt is higher than the rate on old debt. The US is already in a position where net interest on the debt is consuming more than the entire defence budget. It’s already bigger than the primary deficits they’re running on actual spending, and it’s projected to get worse.

“As a result, debt power gets worse which means the interest expense gets higher. Interest expense chews up more of the budget, which makes it even harder to balance the book, so your deficits get worse. This means you have to issue more bonds, issue more debt, and now your debt gets worse, and so on.”

This year, debt interest alone is estimated to be 3% of the US GDP. According to research by Pictet, interest deficits will make up over 60% of the federal debt by 2028.

Read the rest of this article in the December issue of Portfolio Adviser magazine

Political uncertainty also remains a major headwind in Europe. In the same week as the US election, the German coalition government led by Olaf Scholz fell apart with a snap election scheduled for February 2025. It follows similar instability in France.

From a stockmarket perspective, the Stoxx Europe 600 index has also underperformed the S&P 500 by 20% this year – one of the widest gaps on record.

See also: Pictet: Why investors need to rethink their Europe allocation

The S&P 500’s outperformance has further increased its valuation premium relative to the MSCI Europe ex UK index which, according to Karen Ward, chief market strategist for EMEA at JP Morgan Asset Management, prompts the question: is the discount on European stocks justified, or should investors consider reallocating towards the undervalued opportunities on the continent?

“Despite a new US president with an ‘America first’ agenda and Europe’s sluggish recovery, there are still strong reasons to diversify equity allocations regionally,” she says. “While the S&P 500’s earnings are expected to grow strongly in 2025, European earnings forecasts are more modest. European stocks also trade at a much lower multiple on these more reasonable earnings forecasts, suggesting that a significant degree of underperformance is already factored in.

“Europe’s valuation discount is partly due to its sector composition, with fewer tech stocks compared with the US. European indices are more weighted towards industrials and commodities, which have faced challenges from global demand and a weaker Chinese economy. However, every European sector currently trades at a larger-than-average discount versus their US counterparts, reflecting general investor pessimism.

“Policy stimulus in Europe may yet surpass market expectations. While the US seems eager to impose tariffs on China, relations with Europe are likely to remain less hostile. The ECB [European Central Bank] is expected to continue easing, encouraging consumer spending, and European leaders have fiscal tools to counter aggressive trade policies. Efforts to deploy the remaining EU recovery fund may also accelerate.”

See also: BlackRock launches AI funds for European investors

Some of the headwinds facing Europe are not new. Even before Trump’s election victory, the continent was battling weak growth and a manufacturing slump, intertwined with the political uncertainty in its traditional powerhouses – France and Germany.

Meanwhile, GDP growth forecasts remain weak. According to the International Monetary Fund’s October economic outlook, Europe’s real GDP is set to grow 1.6% in 2025 – the same as in 2024.

“Recently, there has been a shift in global trade dynamics,” says Abhi Chatterjee, chief investment strategist at Dynamic Planner.

“There is a clear path of transformation of emerging market economies from a ‘manufacture and export’ model to a ‘consumer’ one, predominantly in China and India. This has attracted growing imports from manufacturers in Europe, predominantly in the luxury and automotive sectors,” he explains.

Read the rest of this article in the December issue of Portfolio Adviser magazine

The global commodity market faces an of challenges that could influence its volatility, such as new Trump presidency in the US, ongoing tensions in the Middle East, and natural disasters across the coasts of Mexico and North America.

However, there is also another factor that is probably the most underestimated one — the evolving economic deterioration of China. So why and how exactly is China influencing the commodities market, and what changes can we expect in the near future?

China’s economy has peaked

China has long been considered one of the biggest world economies, but today’s forecasts are not bright anymore — many analysts think the country’s economic peak already passed in 2021.

The main reasons behind this phenomenon is excess production capacity, a downturn in the housing market, and low consumer activity. All together, they will continue to put pressure on prices.

As a result, China’s consumer prices showed no growth in September, with a year-on-year increase of just 0.4%. Core inflation, excluding volatile energy and food prices, slipped to a modest 0.1%, marking a clear sign of a broader economic slowdown.

See also: Is China at a turning point, or will it disappoint yet again?

This also coincides with China’s cheap labour resources nearing exhaustion, an increase in youth unemployment, an ageing population, and may countries in Europe and the slowing down imports their imports of Chinese goods.

The Chinese government is working to manage these changes, yet the situation remains challenging. And without further stimulus, China risks falling into a prolonged period of deflation similar to Japan’s experience in the 1990s.

These incentives will most likely be further increased in order to avoid the Japanese scenario and provide a gradual slowdown in economic growth to about 3.5 to 4.5% per year over the next three to five years.

China’s economy drives commodity markets

Economic shifts in China have a direct impact on global commodities. The country remains the world’s largest importer of key resources such as oil, and any changes in its purchasing behaviour are reflected in global markets.

The volume of China’s oil imports amounts to 11 million barrels per day, which is only slightly below the level of September last year and corresponds to the average figures for the last months. Overall, import volumes remain stable.

However, the average price of imported oil in September decreased as worries about demand from China pressured market sentiment. The oil price has since surpassed $60 per barrel.

See also: Fairview’s Yearsley: China becomes ‘story of September’

As for energy, it remains one of the key components of the Chinese economy. Despite the aforementioned economic hurdles, China has executed strategic adjustments to its energy sector that may soften its economic landing. From 2022 to 2024, the country managed to cut energy costs per unit of GDP by 5–15%.

The decrease occurred due to a few reasons. The first is linked to cheaper purchased resources since China mainly imports resources from countries in difficult economic conditions and offers them discounts of up to 30% relative to market prices.

Secondly, the country has modernized its own energy system, which has increased its efficiency and lowered prices.

How should investors adjust their strategies?

Faced with the problems within the Chinese economy, investors should pay attention to new opportunities in other regions and sectors.

It is worth looking at American companies, especially in promising areas such as energy, artificial intelligence, robotics, and big data. They are likely to increase their output, which also opens up new investment opportunities.

Indian and Mexican companies that can replace Chinese manufacturers in global consumer markets may also be promising. These two countries are actively developing their production facilities and becoming key alternative production centres.

At the same time, it is important to monitor the large volume of natural resources that China exports and look for alternative suppliers. This will help prepare for possible restrictions on Chinese exports or the introduction of export duties.

Some investors are already moving away from Chinese assets and switching to more reliable instruments such as gold or US bonds, with foreign direct investment in China turning negative for the first time since 1998.