Eastspring Investments
Mar 2025 | 5 min read
Summary
Amid the recent market movements and tariff action in the US, our Chief Economist Ray Farris shares the following key insights in this market update.
• The S&P 500 is increasingly underperforming global markets this year, particularly Europe and MSCI China, and since the opening of China’s National People’s Congress, China A-shares have strengthened.
• This underperformance is likely to continue as US policy change is expected to weaken US growth, making US risk assets vulnerable to further falls in consumer confidence and increases in inflation expectations. While upcoming US data readings for February/March may still look healthy, investors are encouraged to look through them. Data from April should start showing the impact of tariffs on inflation and consumption.
• The US Federal Reserve (Fed) is expected to be slow to respond to weaker growth with rate cuts. Inflation remains above the Fed’s 2% target and its pace of disinflation has slowed. New tariffs combined with rising inflation expectations threaten to cause inflation to reaccelerate.
• For relative performance we remain focused on countries where policy can ease to offset some of the tariff shock and support growth. China stands out thanks to the large fiscal stimulus being announced at the NPC. Europe appears to also be in the process of introducing fiscal stimulus, albeit to a much smaller degree than in China. We expect the ongoing rise in wage growth in Japan to cushion its economy somewhat. We also expect India’s central bank to cut interest rates significantly as the year progresses.
• Markets are likely to remain choppy under the tariff barrage and policy uncertainty. Relying on pure beta plays for portfolio performance would be challenging and active investing would be needed to extract alpha. Diversifying and staying disciplined on valuations would increase portfolio resilience, as would having some quality income within portfolios.
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