Global market outlook

Transcript

April 11, 2025, 11:31AM

Matthew Grimes   0:13
Well, good afternoon, ladies and gentlemen. From a sunny Cam St. here in the City of London.
It's a glorious day today, so thank you so much for taking the time to join our global market webinar.
I'm Matt Grimes, DMD here at the Penny group, hosting today's session and I'm joined by Andrew Summers, who's the Chief investment officer of Omnis Investments.
Who run our flagship investment offering for wealth management clients.
Now, as many of you know, Andrew and his team at Omnis are responsible for deciding which fund managers we use in the portfolio.
How we allocate your funds to various geographies, markets and sectors, both in the short and the long term as well as the overarching governance of your investment portfolio.
Now today's session is certainly good timing with all the recent market turmoil.
And there's plenty to talk about.
So I hope you find educational and reassuring that we are thinking about where appropriate reacting to preserve.
Grow your investments with us.
Now I've had a quick look at Andrew's slide. He's got about 30 slides. So I guess it will take about 30 to 40 minutes to get through.
And then we'll move on to Q&A. For the last 15 to 20 minutes.
Should you have any questions, please use the Q&A button in the top right hand corner of your screen.
Please feel free to add questions as we go through the slides and then I will look at these as we go, trying to group them into themes to address all the Q&A session at the end.
Now, just before we start and hand over to Andrew just a couple of thoughts from me.
2025 is actually my 35th year in the wealth management and financial markets industry.
During that time, I've witnessed a lot of economic shocks and even as a child, I remember the four fold increase in oil prices from $4.00 a barrel to $16.00 a barrel and and the impact that that had.
Since then, we've had pandemics, banking crisis.com bubbles to mention a few.
Each one has been different, rarely foreseen.
But the one great thing I think about human.
Ingenuity is that we always find a way to adapt.
And allow economic progress to continue.
The other thing I'd say during that time is not putting all your eggs in one in one basket has been a bit of a winning strategy.
And this week we've had another economic shock and to help us make some sense of it all and give some guidance on what to do and what not to do.
I'm now going to pass across to Andrew who will reflect both on 2024 and then talk to the more recent turmoil that we've had in 2025 S.
Andrew, Nice to see you.
Thank you so much for joining.
We'll pass across to you.

Andrew Summers   3:38
Good afternoon, Matt. Good afternoon, everybody.
It's it's a real pleasure to be able to spend some time with you this Friday lunchtime to discuss our investment outlook for 2025 and try to provide some insights into the interesting times that we are experiencing.
It is.
It is both a privilege.
And an ultimate responsibility.
To play the important role that I do in helping you achieve your.
Or hard earned financial goals.
And I thank you for the trust that you have placed in in the team here in Omnis.
So I'd like to start with a brief recap of 2024 and then move quickly on to how 2025 began and then talk in some detail about what has happened over the past 10 days in particular. Of course, the imposition and then partial removal of.
Tariffs by the Trump administration on on all goods imported into the US, which has the potential to be a seismic change in the global economic order.
And may yet still have.
Have some.
Important consequences. Although some of the immediate danger may have possibly passed, but more on that later.
Before I start, I'd like to do my best to reassure you, we need to keep things in perspective.
Falls in the stock market that we have seen over the past week, and indeed in your portfolio values are not that unusual, although the trigger for this one clearly is and we have seen the power of markets to recover.
In the past few days, as well as as far back.
But the volatility can be unnerving.
So it is important to remember that the attractive long term expected investment returns that we expect from your portfolios over an investment cycle that will help you achieve your financial goals do include the typical falls in the stock market that we have seen over the past week and.
Yes, much bigger ones.
So whilst these falls are painful and worrying.
And I am an investor as well.
And I have an 82 year old mom who relies on a very modest investment portfolio and state pension.
As things stand, the size of these market movements are not that unusual.
Next slide please.
So just a reminder of how on this fits into your financial journey, your your relationship with your penny group advisor is essential in establishing your goals and risk profile and that will determine the strategic asset allocation you have, which is our view of the optimal long range mix.
Of assets that your portfolio should have, such as equities and bonds.
So if you have a higher risk profile.
Your strategic asset allocation will have more equities.
Which are riskier, and if you are a lower risk investor, your strategic *** allocation will have more bonds which are relatively safer. And if you are in omps or agility, we will then undertake tactical asset allocation, which is where we vary this mix of assets in a limited.
But important way to reflect our shorter term views.
So for example, if we are more optimistic on equities, we will hold more equities for you.
And if we are less optimistic on equities, we will own less equities for you.
All of you have most or all of your portfolio actually invested in actively managed on this funds that are run by specialist teams. We appoint in each area such as UK equities, corporate bonds, Japanese equities, etc.
Next slide please.
So let's start with a brief recap of 2024.
2024 was actually a good year for portfolios with equities delivering strong and outsized returns and bonds generally were positive as well. And you can see that in the orange bars. But they were also warning signs towards the end of 2024 as shown by December.
'S modest fall in equity markets that shown in the blue chart.
Bars. Next slide please.
So why was 2024 so good?
Well, for three reasons.
Firstly, because global economic growth was reasonably strong, as shown on the left hand chart, which is economic growth rates in the major economies. And you can see how the US economy had grown strongly in 2024, but was clearly expecting to slow down in 2025.
But still stay positive.
Whilst the UK and the eurozone have been pretty subdued in 2023.
But we're getting better in 2024 and this year, 2025.
Secondly, inflation was falling and under control, allowing interest rates to fall. As you can see in the middle and the right hand side graphs and this scenario is relatively good for companies, so their share prices rise and bonds do reasonably well because interest rates are falling.
But concerns did start to develop at the end of 2024 in the US, initially after Trump was elected, investors were happy that his tax cutting and deregulation agenda would spur growth. However, it wasn't long before markets started to get concerned that inflation was not falling as.
Much as they had hoped.
And that was going to stop central.
Banks like the Bank of England, from cutting interest rates more.
Equity markets didn't like the prospect of interest rates staying higher for longer to tame inflation, because all other things being equal, keeping interest rates high means less money. Consumers have to spend on goods and services.
And it's more expensive for businesses to borrow, to expand, and that's not good for equity markets.
In the UK, the New Labour Government's bleak assessment of its inheritance plus the NI rises in the budget.
In October, led to an especially gloomy outlook for the UK in the second-half of the year.
Overall, then, our view was the need to be relatively modestly cautious given this outlook and we started the year modestly cautious on riskier assets such as equities.
With a modest preference for safer assets such as government bonds. So we ended 2024 with concerns rising about the US.
And continued concerns about slow UK and eurozone growth.
But things on the whole were looking relatively OK.
Next slide please.
So this is what we said to advisers at the start of the year.
We expected a tougher year with much more uncertainty, hence our caution.
We said that markets would continue to be volatile and we noted the US administration's interest in implementing tariffs and immigration policies that could be negative for growth.
We expected global growth to moderate led by the US, even though we thought the UK and the eurozone might actually pick up a little bit.
We thought inflation would continue to cool, but it was still a risk.
But we still felt that interest rates would trend down.
The biggest risk we identified for markets was that the US exceptionalism that had driven markets over the past 10 years would stall.
All that inflation would be accelerate.
Taking all this into account, we thought that government bonds would actually be relatively attractive given the high real interest rates that government bonds offer.
Next slide please.
So let's now turn our attention to this year.
How was it started?
Well, up until 10 days ago, broadly as we expected.
But tariffs were, as they were initially rolled out at the worst end of our expectations.
I should say now, and we probably repeat throughout this presentation, that the impact of the tariff imposition and indeed their subsequent partial pause will take time.
To feed into actual data and how it is impacting things that drive the stock market or the bond market, things such as how consumers and businesses respond.
Lots of people will be trying to predict these impacts and we pay attention to the most credible of these, but at this stage.
The uncertainty does require us in a lot of instances to wait and see to some extent.
Indeed, the tariff imposition and then their rather swift pause demonstrates how easy it can be to be buffeted by events as investors reacting to things that don't happen, or reacting too late to things that do happen.
So the data as it currently stands is that the US economic situation has been quite mixed to this year.
But a definite deterioration, as we had expected, driven by Doge, Elon Musk's plans to remodel the US Federal government and tariff fears, the Trump administration began its term focusing on tariffs and immigration, which are seen as negative for growth rather than its tax cutting and deregulation plans.
Which would have been very well received by the stock market.
As mentioned, the UK and the eurozone have started to look better, at least before the tariff.
News again in line with our views and finally year to date inflation news has been OK.
Perhaps not quite as good as people might have hoped, but interest rate cuts still look to be on the cards. Next slide, please.
This chart shows the underperformance of various equity markets since the start of the year.
The Orange Line is the eurozone, the light blue line is the UK and the dark blue line is the US.
And you can see how the US underperformed the other major markets well before the imposition of tariffs last week.
And it really began to fall from mid February as all these concerns about Doge tariffs and immigration piled up.
Other stock markets, including the UK, were actually holding up reasonably well.
But certainly the almost decade long stretch of U.S. equity market outperformance had come to a screeching halt this quarter, even before the tariffs were imposed on the 2nd of April.
You can see though, the effects of that tariff announcement on the 2nd of April in the Red Circle.
How an already declining U.S. stock market fell even further and faster, and it was joined by other major stock markets as well.
You can also see the rebound that followed the announcement of the pause on most tariffs on the 9th of April.
But markets have remained nervous since, and we have seen further falls overnight in Asia.
And this morning in Europe.
Next slide please.
But taking a slightly longer view, the recent drop in markets as dramatic as they still look still leaves the US and the eurozone as having delivered solid returns over the past three years.
But the UK, much less so.
Next slide please.
We've used this chart in conversations with clients and advisers recently as it shows a measure of the uncertainty that Americans are feeling due to the actions of its own government.
And you can see just how huge this jump has been with the heightened uncertainty prevalent last month before the tariffs were imposed getting worse after they were imposed on the 2nd of April.
We will have to wait and see the extent to which.
This increase will be reversed as a result of the reciprocal tariffs being put on pause.
Next slide please.
The charts on the left hand side.
Tells us what the data is actually telling us, and it's telling us that a slowdown in the US is surely underway.
But we don't yet know how bad it could get.
So the chart on the left hand side shows you a measure of business activity in the US and you can see the sharp fall at the start of the year as worries about doge and tariffs hit the real economy.
But this data is backward looking.
It does not take into account anything that's happened since the tariffs were imposed, and indeed, you can actually see there was a rebound in U.S. business activity in February and that is circled in red.
On the right hand side you can see the growth or fall in retail sales in America.
A very important indicator of how the US economy is doing, given how much Americans consume.
Again, you can see a sharp decline at the start of the year for reasons we've discussed, but some recovery in February.
We will be getting data for March soon, but even this data will be for the period before the 2nd of April imposition of tariffs.
So it again will still be to some extent backward looking.
So before the imposition of tariffs on the 2nd of April, the data continued to be mixed with clear signs of a slowing economy relative to 2024.
But no obvious signs of a recession.
Next slide please.
What we're looking at here is sentiment, investor, consumer sentiment and sentiment is very important as it tries to measure how consumers and businesses are feeling. Now, this might sound fluffy, but it has been proven to be a good determinant of how consumers and businesses actually end up, Beh.
Whether consumers spend and whether businesses invest has a critical impact on the US economy.
And both the direction of the equity market and the bond market, if sentiment is strong, equity markets typically do well.
And the converse, if it is weak, the drop off in sentiment we can see circled in red is clear.
And again, this was before tariffs this week.
Sentiment will impact the real economy.
And we can see that in the labour market data on the next slide.
We have long been concerned about the US labour market, which has gradually weakened, but it's been very gradual.
As we have been expecting a slowing the US economy, we expected this to lead to higher unemployment, which would confirm our view.
This chart shows that if expectations of unemployment turn out to be correct, we could be on the cusp of a larger rise in unemployment.
We track various measures of the labour market and many of them suggest that even before the imposition of tariffs, we should have been expecting material increases in layoffs.
S.
This is all consistent with the idea that the jump in economic policy uncertainty is beginning to weigh on hiring.
And again, this is before Trump's tariffs. Although I should note.
Last Friday, which was obviously since Trump's tariffs were announced, there was a very strong jobs report out of the US.
Reinforcing the message that the picture is mixed and hard to read. Next slide, please.
Turning to the UK, let's remind ourselves that the role of the Bank of England is to set interest rates to control the economy when economic growth is strong and inflation is high, they raise interest rates to cool things down.
When the economy is weak and inflation is falling, they cut interest rates to support the economy.
But here's the problem.
At the start of the year, there was a lot of talk about whether the UK was entering stagflation.
Stagflation means low or no economic growth.
But high levels of inflation.
And you can see the sticky inflation on the left hand side.
It's starting to tick up and it's not continuing to fall and you can see the relatively low levels of economic activity in the UK on the right hand chart.
Now this is a toxic mix for investors because the low or no economic growth is bad for equity markets, as company profits tend not to grow without economic growth.
But it's also bad for government bond investors because inflation remains high, which erodes the value of bonds fixed interest payments.
And it puts the Bank of England in a bit of a bind. Slow growth makes them want to cut interest rates.
To stimulate the economy, but elevated inflation makes it harder for them to do so because lower interest rates could make inflation higher, which they want to avoid.
A lot of UK economic indicators since the budget in October have been woeful.
Which pretends continued low growth and at the same time sticky inflation limiting the Bank of England's ability to cut interest rates to stimulate the economy.
Hence the concern that the UK was starting to get stuck in a low growth, high inflation rut.
But the good news is that the actual data from the UK so far this year have been a bit better, especially on the economic growth front as we expected and are circled in red on the far right.
And this morning we got a really rather good February economic growth number.
And good jobs data came out yesterday as well.
So this potentially higher economic growth?
Has been driven.
By strong real wage growth that helps consumers spend more because they are getting good real wage increases.
But ironically, it is that same strong real wage growth that keeps inflation sticky.
So until the imposition of tariffs, we were of the opinion that the Bank of England was more focused on the improving growth picture.
And more concerned about inflation than it had been before.
Possibly making fewer interest rate cuts than we had previously expected.
It is our current view that the imposition of tariffs may have changed the Bank of England's calculus actually now and so may go back to focusing more on slowing growth.
Than on worrying about inflation, which would actually mean them reverting back to thinking more about cutting interest rates rather than worrying too much about inflation.
But time will tell.
Next slide please.
Just a few words on the spring statement as there was precious little news and the market reaction was thus muted and things have really been overtaken by events which are about to get get to.
But nevertheless, it's worth touching, touching on it. A chancellor, Rachel Reeves, was told by the OBR last month that she was at danger of breaching her fiscal rules.
There are several such rules, but the main one is that the government must cover day-to-day spending with current tax receipts.
It can only borrow to fund investment spending.
And she considers this rule sacrosanct.
So she had to take action when the OBR delivered its warning.
Why was there a risk all of a sudden that these rules were being breached?
Because she has to take account of the higher yields on government bonds, which at the time of the spring statement were about nought .5% higher than they were last autumn.
Now these higher government bond yields doesn't mean the interest rate rises have risen in the commonly understood sense.
As you know, they haven't.
But the market expects interest rates out into the future to be slightly higher than previously forecast.
This means that the cost of servicing the national debt will rise, worsening the government's fiscal position. Furthermore.
Inflation expectations have risen modestly as well. Mean, meaning the chancellor.
Now needs to budget for higher government spending costs through higher inflation, just as households and businesses do.
So in response to all of this, the Chancellor cut spending further in the spring statement, raised taxes a bit here and there, and undertook to borrow more for investment purposes.
What was clear before the spring statement and immediately afterwards was that the Chancellor was cutting it very fine to meet her. His rules to meet them.
Spending plans are very tight.
And despite this corrective action she took in the spring, she still has very close to she is still very close to being likely to breach those fiscal rules again later this year.
And given the likely negative impact of Trump's tariffs, it seems very likely that Reeves will need to take further action again in the autumn.
Either change or break her fiscal rules.
Raise more taxes or cut more spending.
Next slide please.
Now let's turn our attention to the main event. Last few weeks, the introduction of tariffs on all goods imported into the US and the subsequent pause of a lot of them.
A tariff is simply a percentage tax on the value of every physical good that is imported into a country.
Nearly all countries impose them.
Typically they vary by type of good sector.
There are various reasons for them, but normally they are to protect domestic producers.
Of that good by making imported alternatives more expensive.
Other non tariff barriers to trade also exist, such as product standards.
Famously, we restrict the import of us chickens because of their chlorine content.
There has been a decades long general consensus in favour of reducing tariffs as global trade was seen in general as a positive.
By imposing these tariffs, Trump is challenging this important consensus.
The list of tariffs that were initially imposed and have now been paused is shown by country on the left hand side of the screen.
And how that tariff correlates with a country's trade balance with the US is shown on the right.
Trump announced a baseline 10% tariff on all countries.
And then a top up reciprocal tariff, the way the US has calculated these reciprocal tariffs is very crude.
When Trump says Vietnam imposes 90% tariffs and barriers on US exports, that is not true.
As the right hand graph shows, it is simply that Vietnam's imports from the US, minus its exports to the US, divided by its trade balance, is 90% and the US has taken half of that.
45% and set that as Vietnam's tariff rate.
And it has done that for all countries.
It would be funny if it wasn't so.
Serious.
I am not joking. When a number of commentators are pointing out that if you ask ChatGPT how to come up with a basic tariff regime, it comes up with this precise methodology.
Surely the Trump administration did not use chap GPT to come up with these reciprocal tariffs.
So in many senses this makes no sense, because a country's trade balance with the US.
Might reflect tariffs or other barriers, or it could simply reflect businesses and consumers preferences and the tariff. The reciprocal tariffs, as initially imposed and now paused took no account of specific sector differences or considerations.
Now, earlier this week, Trump announced a 90 day pause on those reciprocal tariffs.
But the 10% baseline tariffs remain and with the important exception of China, where he doubled down again and China has retaliated. So the tariff situation is now broadly 10% on all imports and astonishing 145% tariff rate on Chinese imports with China.
Imposing similar rates on US imports and specific tariffs on aluminium and cars and certain other goods.
So the overall state of play now is that the effective tariff rate on US imports has risen from 3% to about 14%, far off the 22% that was being calculated before the 90 day pause.
But still taking us back to tariff levels last seen in the 1920s.
So why did Trump blink and reverse, or rather, pause those tariffs? Contrary to what many people at first assumed, it wasn't the crashing stock market. Rather, it was the increase in U.S. government bond yields, especially those with long duration.
The chart here shows the yield of government bonds.
IE.
The cost of debt that the UK, dark blue and the US.
In light blue incurs.
And you can.
Big dramatic impact in the last few days.
The US government or the UK Government, or any government issues, bonds which investors buy to fund the budget deficit of the government.
So the US issues a bond of say, 10,000 lbs that pays an interest rate of 4%.
So an investor hands over £10,000 to the US government.
The US government needs that £10,000 because it spends more than it raises.
Taxes and in return, the US government pays that investor 4% a year interest.
When the board, when the bond matures, say in 10 years time.
The investor gets his or her £10,000 back and he or she has been paid 4%.
Every year in the interim.
Now when there is uncertainty in financial markets and the economy.
Normally, investors sell equities and then buy government bonds because unlike equities, which have a have uncertain dividends and an uncertain end value, government bonds, certainly those issued by the US or the UK always pay the agreed interest rate and they always pay the principal money back at the.
End of the term, they never default.
So they are considered safe assets to own in uncertain times.
But this didn't happen over the past few days.
IE people were selling not just US equities, but they were selling US bonds as well.
And when U.S. government bonds fall in value because people are selling lots of them.
It raises the rate of interest at the US government has to offer to pay to attract investors, to buy those bonds and lend to the US government.
Now this would have been very worrying for U.S. officials in the past few days as it implied that the tariffs had triggered a sell. the US mentality, rather than just a sell US equities mentality and given the size of the US government's budget deficit.
And its need to continue.
Due to issue these bonds and get investors to buy them, it could.
I'll afford to see it hovering it, having to offer much higher interest rates to investors to entice them to buy those bonds they issue to fund their deficit.
So the sharp rise in the light blue line, the price investors were demanding to lend money to the US government is what we think.
Caused Trump to blink.
And it's interesting that this higher price that investors are now demanding to lend to the US government hasn't materially dropped since the pause was announced, implying that investors remain wary of the damage done by Trump's rollercoaster ride. Next slide, please.
So what matters to your investment portfolio is the actual consequences of all of this on the economy.
And it's really important to look beyond short term noise and focus on the medium term implications as all the evidence we have suggests that the best investors are those who take a long term view.
So it's important to note that we are starting to see forecasters reducing economic growth expectations for this year.
Although only to the extent that has probably now already been priced in to the stock market from the falls we've seen in recent days.
But it's clear that as initially introduced, these tariffs were worse than the market expected, both in scale and methodology.
And tariffs are bad for equities because it is a tax that either the company has to absorb.
And therefore has lower profits.
Or the consumer pays, neither of which is good for the company or its share price.
Even if even with the pause in these reciprocal tariffs, and assuming they are not reimposed, the impact of the 10% baseline tariffs on all countries and the 145% tariffs on China is very likely.
Going to lead to higher prices for US consumers, higher inflation and lower growth for the US virtually all studies of tariffs suggest that at least half the cost of tariffs are passed on to consumers via higher prices.
We will already seeing a slowdown in this economy for these tariffs were imposed and this will make matters worse.
How central banks respond?
To this with their interest rate decisions will be key.
We've already seen how tariffs may have made interest rate cuts less likely because it could lead to more inflation, which would be negative for bonds.
But it is possible, if not quite likely, that in the case of the UK and the eurozone, the actual effects of tariffs will be to make central banks more likely to cut interest rates.
And that would be positive for bonds.
India has already cut interest rates.
New Zealand has already cut interest rates.
These decisions will be taken on a country by country basis.
These are the sorts of decisions that we and the investment managers of our actively managed on this funds will be taking in the weeks and months ahead.
So there is still a lot of unknowns because although the 90 day pause has limited the immediate damage, the remaining tariffs still have an impact.
It is still unclear how businesses and consumers will respond.
The tariff war between the US and China could have big implications for the UK and Europe, with China looking to offload all the goods it has already manufactured and was ready to ship to the US that it will now need to find another market for supply chains.
Over decades and years, will need to be reworked or within the context of a very uncertain outlook for what the actual end state of tariffs and trade deals will look like.
Next slide please.
Excuse me.
A quick word on the impact on the UK. I said earlier that the UK got off relatively lightly.
It has the 10% baseline tariff rate imposed and there are 25% tariffs on cars. And Trump also seems to have insights.
Our very strong Pharmaceutical industry as well for reasons we can go into later if people are interested.
Only 15% of our exports, however, go to the US.
We export much more to other countries and especially the EU, so our exports to the US account for only 2% of GDP.
So our best guess at this stage is is that if things stand as they are, the economic hit to the UK will be less than about nought .5% to GDP this year.
And the Bank of England will probably look to cut interest rates three times this year, not 2 to offset the negative effects of tariffs on this growth.
Right. But it is hard to know and the uncertainty that now pervades the global economy could have unintended consequences for the UK.
And given how slow the UK is growing and how precarious are our national finances, even a relatively modest hit to economic growth will be most unwelcome.
Next slide please.
I've kept this slide in, which was from my original draft earlier this week, before the pause was announced, because I still think it quite nicely illustrates the situation that we are in.
When the first tariffs announced, we thought that the that the bear case, the worst case on the left was really quite bad and that there'd be a full scale trade war and that would be really negative for equities. And it'd be really negative for bonds as well.
Because it would make inflation go through the roof.
Which would be bad for bonds, but it was a risk nonetheless.
We thought the most likely scenario was the middle scenario, the neutral case, and that's where there would be a modest reversal of the tariffs, but not all of them markets would remain pretty volatile.
There would be a hit to economic growth, but it wouldn't be that bad or it would be manageable and this would probably be modestly OK for equities and also for bonds.
So the we and then sorry, finally we also thought there would be a ball case.
I best case scenario, we also thought this was pretty unlikely.
We thought the bear case was unlikely and the bull case was unlikely.
The ball case was where this is all forgotten.
Uh, the gross hit was very brief.
Confidence was restored and that would be really, really great for equity markets.
The market would rally a lot.
So the neutral case of the middle was always the most likely, and that has become more so in the last few days and the range of possible outcomes has narrowed because we think the bear case is not that likely. Now we think the US has shown little app.
For a full scale global trade war, and we think Trump.
Certainly doesn't want to remove all tariffs, so we think the middle range, the middle outcome is the most likely.
But the fact that the stock market recovery has been, you know, tepid at best means that investors are still concerned about the consequences of what this all means.
It's highly unlikely that the baseline tariffs will be removed. It seems unlikely that the paused reciprocal tariffs will be re imposed after the 90 day period is up.
And crucially, although China has to date matched all of the UK tab, all of EU s s tariff increases it has said today that after today it won't.
So China has not reduced its tariffs, but it has called time on any escalation.
And this is potentially an important sign. Next slide please.
So the overall impact, I'm afraid to say, is hard to discern, but in the short term, markets will definitely remain volatile and it's really important that you know that you're on this funds are being actively managed.
We are modestly underweight equities, especially the US in pmps and agility and that seems like the right place to have been in the medium term, slower growth and higher inflation is likely and that will provide additional tactical opportunities for our managers.
And for us and in the long term, what this all means is really hard to say.
But that will be a decision that we take with a very, very long term view in mind via our strategic asset allocation.
So in summary.
A previously expected US slowdown has just got a lot more likely and it will impact the rest of the world as well.
But economic fundamentals, as they stand remain reasonably strong. OK.
But they will definitely be tested by what's going on in the past few weeks.
The good news is that a full scale trade will now looks highly unlikely.
But there is continuing concern around the trade war.
Between the US and China.
Our central case was always that karma heads would prevail and that looks to have been the right call.
But for now, and we need to continue to watch the actual evidence and data on on the ground and focus on fundamental, what does this mean for your portfolio?
Well, just to remind you, your portfolios are well diversified.
Your strategic asset allocation is well placed to deliver attractive long term returns.
And this is unaffected by recent recent market drops.
As they take into account expected market volatility, market drops to the scale often coincide with high levels of uncertainty and concern.
And decisions taken in times of stress, with incomplete information, often the worst decisions.
So it's careful not to over react.
Your portfolios are well diversified.
They're being actively managed within the Omnis funds.
And OPS and agility benefit from tactical asset allocation as well and it's really important to take a long term view.
So just a couple of slides before I finish, many of you will have seen this slide. Next slide before is the expected long term returns that we expect your portfolio to deliver. It is really important to remember that the expected long term returns from your portfolio include the.
Substantial and sometimes severe equity market falls that we've seen which are a natural part of investing over.
Long term.
The next charts reminds us all that we would strongly advise against trying to time the market.
This graph shows what would happen if investors sold out of the market at the bottom after a 10% fall, and if they then waited and re invested once they they were comfortable that the market had recovered by 10%.
The bottom line is the result blue line at the top.
Is what happens if you stay invested?
Very few people, including some of the best investors in the world.
Can time markets well and we don't think people should try.
And then finally, this is a really good chart to remind people how short term market movements don't really impact long term returns.
This analysis has taken every quarter's stock market returns going back to 1969 and has bucketed them according to how that stock market performed in that quarter. And that is the green bar. So on the far left, you can see that the average fall in the.
Stock market of the worst quarters going back to 1969 was about 22%.
The black bar shows the per annum return of the stock market.
Over the next 10 years.
So in this example on the far left, the average four in the stock market taking the worst quarters since 1969, the worst quarters can you can see stock markets fall by over 20%, but the subsequent per annum return after that fall was 15% a.
Year.
You then look at the far right hand side of the chart.
And you can see the best quarters for the stock market since 1969 and the best quarters have delivered on average almost 25% return in a single quarter.
Comparing it to the black bar, which is what happens subsequently over the next 10 years, you can see the number is almost identical.
To the return you would have got after a terrible quarter. Equities.
Whatever happens in a particular quarter in the stock market typically has no impact.
On what happens over the long term and that is what matters, and that is why staying invested for the long term is what matters.
Thank you very much for listening.
That's the end of my presentation.

Matthew Grimes   47:32
Great, Andrew.
Thank you very much indeed. Very informative and educational.
But nonetheless, a little bit of turmoil out there that we all have all got to try and kind of understand and kind of work through.
So we're into the Q&A session now and I'm just going to pick up, if I may, on the 1st question from David, which is what would be the likely outcome if the US.
Impose tariffs on services or if countries retaliate with tariffs on US services.

Andrew Summers   48:11
Yes, well, that would obviously be a substantial escalation and it would be very negative for the UK, which exports a huge amount more in services to the US than it does goods. There has been some chatter that the European Union might look to impose tariffs on services from.
The US as a response to Trump imposing tariffs on goods from the EU.
I think technically that is a lot more problematic.
Than applying tariffs on goods.
So I think it would be complicated.
It would be a significant escalation and I think we should all hope that that they don't do that and as I said earlier, karma heads prevail.

Matthew Grimes   49:01
OK.
Thank you.
Next question is just going back to the on this portfolios, Andrew.
Within the Omnis portfolios, which kind of funds and sectors have have been exposed to the current turmoil?
From the worst side, and which have been most protected and actually do you see in your kind of tactical shorter term lens any opportunities that are coming out of the current?
Turmoil as well.

Andrew Summers   49:34
Yes. So unsurprisingly, the worst affected equity sectors have been those most exposed to international trade and supply chains such as autos, tech, mining, and in contrast, companies with strong domestic operations have been least affected in the fixed income market has discussed the US government bonds that aren't due.
To mature for quite some time have been amongst the worst affected.
But as you know, all client portfolios are very well diversified.
By asset type by sector.
And they have lots of different expert teams looking at their own portfolios in terms of tactical opportunities. Yes, they will emerge and that will happen over time, but we need to tread quite carefully.
There's still a lot of unknowns.
We will probably do some tactical trades in omps and agility later this month, but these were in train before the tariffs I was actually on a call with Fidelity yesterday and their analyst team is going through every single company in their portfolio trying to work out the Poss.
Impact of tariffs on the costs of goods sold.
Every company that they own, what this means for the business does their competitive position mean they can pass on higher cost to the customers by high prices or not?
And they adjust their supply chains. This is really important, detailed work, but it takes time and when opportunities present themselves, we expect our investment managers and ourselves to take advantage, but not to act precipitously.
The investors that will come out best from this whole episode are those that do not panic, do not take knee jerk reactions, but do the hard detailed analytical work to identify those opportunities.
And to take advantage of them.

Matthew Grimes   51:27
OK.
That's that's really good to hear about.
You know what some of the fund managers are doing in terms of the kind of due diligence and the underlines underlying companies that they own.
That's really helpful and useful to know.
Can I just kind of go from the short term to try and think about really the long term and maybe other thinking about your kind of you know economics head?
Here. So if we go beyond the kind of short term headlines of the tariffs.
And the main economic themes, if we think about all the other kind of geopolitical situation that's also been happening over the last 2-3 years, particularly since the Ukraine war.
Do you think that we're going to kind of see?
A.
A different view from the likes of yourselves in the investment management industry about how portfolio construction is is done because.
You know, we're going to see a sea change about the way World Trade is done.
And you know, there may be much more.
You know an insular world that we operate in. What?
What kind of views do you have about the long term impact on portfolio construction?

Andrew Summers   52:46
Yes, I think there are some potential themes already emerging and they may take time to play out. And I again would just reiterate the importance not to move precipitously in these things if these trends shift over time.
We will have plenty of opportunity to adjust portfolios.
Accordingly, and help clients make more money out of it without moving too quickly. But that being said, there are a couple of things which are already emerging.
Possibly more inflation protection might be needed in portfolios over the long term.
If if we're seeing less globalisation, because, remember, globalisation was a huge force for deflation and keeping inflation lower than would otherwise have been over the past decade because we could literally just, you know, from one click on your iPhone, you could scour the world for the cheapest good.
So there was a huge amount of deflation built into globalization.
And if that's reversing, inflation will be higher going forward than it has been in the past.
Wartime fiscal spending will not help.
Europe is rearming. The UK will have to do the same.
And remember that the decoupling of the US from China is not temporary, right?
It's long lasting now.
And that could have lots of consequences, still untold beyond tariffs on imported goods, the Chinese government owns loads of U.S. government bonds.
Will they remain?
China allows lots of US investments into its companies, and the US allows Chinese businesses to list on U.S. stock exchanges.
Will that remain?
The economic ecosystem between the US and China is so much more complex than the trade of physical consumer goods.
And over time, we are going to need to look very carefully about how that all evolves.

Matthew Grimes   54:44
OK.
I think you slightly took the wind down of myself on the next question, but I'll ask it anyway.
Just about the Chinese.
I mean, they're absolutely in the crosshairs of.
Mr. Trump's sites, what do you think that they will do, given that they have, you know, such big?
Trade exposure to you know a there an exporter, so kind of World Trade matters to them.
And obviously there are big exporter to the US. Do you think they'll kind of, it'll be a kind of watching brief again or do you think that they will be more proactive about how they develop their trade policy?

Andrew Summers   55:27
Yeah, a few things.
Firstly, we expect the hit to Chinese GDP on the current 145% tariff. And remember this big question mark over over whether that stays.
But if that stays, it'll hit Chinese GDP by about 2% this year and a little bit less in the year after.
That's a significant hit, no doubt about it, but they have quite a lot of resources to support the economy. We'd expect them to do that through, you know, boosting government spending and flooding the economy.
With money, they can devalue their currency, which will make their exports to other countries not hit with tariffs cheaper.
The secondly, if you don't mind, I'm just going to read you something that our economics research partner says on this.
I have that upon screen because I actually was reading it earlier.
So if you don't mind, just bear with me whilst I read this. I think this is.
This is this should probably tell you everything you need to know.
So this is what they wrote.
Everyone is asking what China's next steps are, following the *** for tat retaliation between the US and China over the past few days. To answer that, we have to understand the personality of President Xi. He cannot show any weakness as a party leader when dealing with foreign.
Pressure. He is supposed to show strong leadership during challenging times and most importantly, he cannot lose face as that will threaten his leadership.
We also have to understand China's reaction, viewed in a historical context, the country went through tough times back in the 1800s, the so-called century of humiliation with the opium wars. This has made China particularly sensitive to trade related quarrels.
200 years on, it is now President Xi's political goal to rejuvenate the nation by 2050.
So the *** for tat salvos should not be considered just another business proposition.
On which President Trump's governing philosophy is based.
But it should take into account politics, of course personality and the historical legacy.
In our view, China is unlikely to back down on its retaliation openly in the public domain.
That said, negotiations could take place behind the scenes as countries make deals in their national interest.
Potential moves beside giving markets more access.
To US, companies in previously closed economic sectors could include the sale of Tiktok, compromising on China or helping with the Ukraine issue.

Matthew Grimes   58:08
Yeah. So they're clearly in it for the long game, I think is the is the conclusion from from that point.

Andrew Summers   58:15
Yeah.

Matthew Grimes   58:16
OK, if you've got time, I've got one more question to ask, if that's OK, Andrew.
Just going back to, sorry, I've just got just bear with me one second. I have seen another question come in.
So just bear with one second.
So we've got a couple of questions from.
Martin.
Two questions from me.
What is the implication of all this for the on this 2025 strategic *** allocation? Should we regard this still as valid or is it back to the drawing board? That's question one.
Question 2.
What is the view on the UK?
Yes, it's easy to paint a gloomy picture, but what was absent from the presentation was relative valuation for the market, which is currently.
Low, so a couple of questions there.
About our SAA changes, Andrew you know, is that all still valid?
And then second, just picking up on, you know the UK being relatively low values etcetera, if that's OK.

Andrew Summers   59:29
Yes. So the first question on the SA, the SAA, it remains really important that we conclude the transition from the old SAA to the new SAA and that we move clients to a more global approach.
But the events of the past few weeks and the volatility have shown why. Once it's finished, we did it in six tranches over 12 month period because we wanted to avoid the danger of being unfortunate with our timing of such an important shift.
Now, even if we have been unlucky in our timing, it probably wouldn't have mattered over the long term, but we want to do whatever we can to manage portfolios reasonably and responsibly. And so that is why we did take our time and do it over quite a long.
Period of time, but nothing over the past few weeks has changed our view that the new SAA, with its more global approach, is the right way forward.
On your second point, on the UK, we're not particularly gloomy on the UK. We have a modest overweight position inity to UK mid caps, which are more focused on the domestic side of the UK economy.
We agree that the market is quite cheap.
The problem is is that valuations don't really drive stock market performance over the short term. In the very, very long term it does.
But it doesn't really over the short term, unfortunately.
But it's important to remember that even after we've done this SAA final tranche and your portfolios are now all on a more global footing.
Your your allocation to the UK stock market relative to the UK's portion of the global stock market relative to the MSCI world, is still substantially overweight the UK. So the UK stock market is a proportion of the overall global stock market.
About 3% and the new SAA has the UK at about 20%.
So we agree with you, the UK looks relatively cheap and that is why we still have a good allocation, much larger frankly than the statistics would suggest it should have in the UK for the long term. And on top of that, we've got a little tactical overweight to.
Particular parts of the UK market as well on valuation grounds.

Matthew Grimes   1:01:56
Great. I'm just going to ask if you've got time, Andrew for one final question, then we'll wrap up.
I just want to go back to.
President Trump's aims his political aims to what extent they can connect with economic reality, and that is this question of him wanting.
To effectively reassure a lot of, you know, high skilled manufacturing jobs back in the US by by American.
And et cetera.
To what extent is that policy aimed? You think you know realistic.
Is there any evidence of it happening in the past?
How long would it would it actually take?
Are there any other mechanisms besides tariffs to to achieve that aim do you think?

Andrew Summers   1:02:43
Yes. So it has happened before to some extent and and yes it is possible to some extent.
You may recall that Trump had a trade war with China during his first term.
And some jobs did return to the US as a result of that.
But a bigger example, ironically, would be Biden's chips act.
Which has done a very good job of creating 10s and 10s of thousands of new jobs, good quality jobs.
In the semiconductor sector, and those jobs would have otherwise been overseas. And it's ironic that Trump rails against the chips act, given it really does a lot of what he's trying to do.
There are challenges though in this.
And there's a couple.
Firstly, to what extent do US workers want to work in factories making the sorts of goods that are now impacted by Trump's tariffs?
You know, most famously, you know, Nike trainers that are made in Vietnam.
You know, will Americans consumers want to pay the higher cost of those trainers?
That would arise if they were made by workers, you know, being paid $20.00 an hour rather than $2.00 an hour.
Us manufacturing wages are 10 to 20 times higher than in Vietnam and similar countries.
So.
You know that has to be taken into account and then of course you have the question of how long will it take and you know, for simpler goods, you know, probably not that long, but for more complex goods, the sorts of goods that Trump probably wants to Manu.
In the US, high wage high value add goods.
These can take a lot longer, and increasingly the manufacturing's been done by robots.
And you know what the businesses do in this situation? You know, I just think if you of a company now.
Now in the US, with manufacturing plants overseas, you're in a really tough spot because there's no clarity on what the trade policy of a particular country will look like under Trump.
Let alone what it'll look like in a post Trump world.
And it's hugely expensive and disruptive, bringing back production on shore with all the issues of that involves, such as having to charge customers a lot more for the goods or taking a lot less.
Profit.
All in the context that this this experiment.
My might might come to an end.
So I think time will tell. I think there is definitely some potential for Trump to deliver some of his goals.
But I you know, question at what cost?
And that is still got a long way to play out.

Matthew Grimes  1:05:39
Great. OK. All right.
I think we'll knock it on my head there, Andrew.
First of all to say thank you to you for giving up some of your Friday expert, you want to get back on the phone to fidelity thread, needle and and the like.
So we'll let you crack on with that. And to all of the audience, ladies and gentlemen, who's joined us today. Thank you very much indeed for giving up a bit of your glorious Friday afternoon.
I come back to my point that I made originally.
Having, you know, been in the markets and and worked in finance for 35 years is that my observation is that with every trial and tribulation generally what happens is that adaptability and ingenuity eventually prevail and and economics March forward. We have got a recording of this, that.
Will be going out to those clients who who requested it, but it is available as well.
Do reach out to your penny group advisor.
If there are additional questions on the back of that.
But other than that, have a great weekend and thank you so much for your time. Goodbye.