Tariffs & trade war: Market commentary

WEDNESDAY, APRIL 16

14:30 CET

Watch now - our ‘Tariffs & trade war’ webinar

Global macro | Martin van Vliet, Strategist
Credits | Matthew Jackson, Portfolio Manager
Global Equity | Michiel Plakman, Lead Portfolio Manager
Quant Equity | Jan Sytze Mosselaar, Portfolio Manager

The announcement of President Trump's tariffs has had a significant impact on global financial markets, leading to historically elevated volatility and severe market uncertainty. While these Trump tariffs have sparked sell-offs across asset classes, market moves like these usually also create opportunities. Watch this webinar in which our investment experts discuss the current market volatility and strategies for resilient portfolio growth.

Watch now

11:00 CET

Despite tariff uncertainty, emerging markets could benefit from a ‘triple tailwind’

Jan de Bruijn, Client Portfolio Manager

From Asian manufacturing hubs to Latin American near-shorers, and commodity exporters, every emerging market (EM) is facing unique challenges from US tariffs. Nevertheless, with valuations close to historical trough levels compared to developed markets, a still favorable earnings outlook, and with recent USD weakness, we have a potential 'triple tailwind' that makes us constructive on EM equities.

Asia: The region is exposed to US tariffs due to its role in global manufacturing supply chains and significant trade surpluses with the US. While some ASEAN nations have benefited from trade diversion away from China, many now face direct US tariff threats. China faces the most extreme pressure. India’s domestic economy provides some insulation and ASEAN’s growing import dependence on China creates significant indirect risks from US-China tensions.

Latin America: Mexico’s integration with the US economy makes it highly sensitive to US trade policy, although USMCA provides a crucial shield for compliant goods. Brazil, facing a lower baseline tariff and being a major commodity exporter, might be relatively less impacted initially and could potentially benefit from agricultural trade diversion.

Emerging Europe: Countries in this region are primarily affected through the EU-wide lens, facing the paused 20% reciprocal tariff and existing steel and aluminum levies, and are vulnerable to any broader European slowdown.

Positioning
In Robeco’s fundamental EM strategies, positioning is relatively defensive in both a regional and sectoral context; underweight in emerging Asia and the Middle East, while being overweight in Latin America, emerging Europe, and Africa. Across all regions, we have generally avoided pure export sectors and companies, preferring to focus on domestic dynamics in China, Greece, Brazil, and Indonesia. China’s recovery momentum and stimulus measures means it may be unwise to remain underweight in this significant country within an EM portfolio.

Transcript

Voice over: This podcast is for professional investors only.

Erika van der Merwe (EM): Welcome to Robeco’s Market Flash. Amid fluctuating tariff tensions, US bond markets have shown striking behavior, with investors selling Treasuries alongside equities, a rare departure from convention. Beyond sharp price swings, long-dated US bonds have struggled to serve as a safe haven during a pivotal risk-off moment, raising questions about their role in today's markets. Martin van Vliet joins us now for some insight on this. Martin is a strategist in Robeco’s Global Macro team. Welcome, Martin.

Martin van Vliet (MV): Hi, Erika.

EM: Thanks for stepping away from your screens at this time.

MV: Exactly. But it's also great to be able to talk about this instead of enjoying it yourself behind the screen.

EM: Making history, right?

MV: Exactly.

EM: Martin, talk us through those days and hours of extreme market movements before the announcement by President Trump that he was pausing for 90 days the tariffs.

MV: Yeah, obviously, the week earlier we had heard the news about the reciprocal tariffs. I think generally markets were shocked by the sheer scale of the tariffs. We saw immediately a reaction. Equity prices went down sharply. Big moves on the day. And what you normally see then is that there's a flight to safety, that many investors buy government bonds because they are considered ultra safe. And they typically perform well in during times of turmoil, so bond prices then go up and yields go down. And that's what you saw on April 2nd, April 3rd and also into last week when, the reciprocal tariffs were paused for 90 days. So that was sort of the normal developments you see on bond markets and equity markets.

But then all of a sudden the day before April 9th, we saw a very strange pattern. I mean, we were talking about it at the desk, all of a sudden we saw US Treasury bond prices also going down. So especially in ten-year tenors but also in 30-year tenors. We thought “well there are some auctions there so the treasurer needs to borrow money.” But it just continued and got worse. So then people started to question how safe are US Treasuries? A complete breakdown of normal correlations. So it was quite something that day.
EM: So what do you read into that? Is it, as you said now, that there was a complete lack of confidence because of unpredictable, volatile policymaking, that investors just didn't consider US long bonds to be safe? Was something else happening?

MV: Well, obviously there are a number of potential explanations. So you start to discuss, “is it that foreigners are getting nervous or are they selling Treasuries?” For example, the Chinese government or the Japanese government? They also own a lot of Treasuries with Japanese insurers.

EM: Japanese insurers – Japan is the biggest bondholder.

MV: You have the official sector who owns Treasuries, like the governments. But you also have the private sector. So there was a lot of discussion about “are the foreign official holders selling because they are being imposed with very high tariffs?” But quite quickly we also ourselves concluded that's probably not the case because they own a lot of shorter-dated Treasuries and not necessarily longer-dated Treasuries.

So then the next potential explanation was that it's just that in a risk-off environment, people with very leveraged positions need to unwind those positions. So probably what was the real reason is that, for example, hedge funds were long Treasuries and short swaps against it. They had to unwind so I think it's just that in times of turbulence, you see where the crowded positions are. And they were in long Treasury positions for sure, and they got squeezed out on that particular day. And that obviously in itself also had an effect on the Trump administration themselves.

EM: So do you think it prompted a change of behavior even though everyone's denying it?

MV: Well, I think Trump himself said that he was watching the bond market very closely, and he was getting a bit of “yippee”! I actually didn't know the word myself but it immediately reminded me of this quote by a former adviser to Bill Clinton who said, “If there's reincarnation, I used to think I want to come back as a president or a great baseball player or the Pope, but I'm quite sure I want to come back as the bond market because I can intimidate everyone.” And exactly. That's what happened. I mean, supposedly what triggered Trump into hitting the pause button was the turbulent bond markets. So the bond market intimidated Trump himself.

EM: And through Treasury Secretary Bessent, perhaps because he describes himself as the world's biggest bond trader.

MV: He’s very much aware of the technicals. And he on that particular day, April 9th, [saying] that “there's no problem to financial stability whatsoever.” But obviously there's a lot of market chatter and supposedly he was getting a bit worried. So he probably has said to Trump, “Listen, the equity market can go down, but if Treasury yields go up, that has ramifications for the entire financial system. Mortgage rates, everything is priced for Treasuries. So if that market doesn't function then we potentially have a big problem.” So I'm quite sure actually that it was the bond market that triggered Trump into a pause.

EM: And how close do you think the US Treasury market was to some extreme dysfunctionality collapse, disappearance of liquidity, for example?

MV: Well, I think it was clear that something was going wrong there, but it –

EM: Our spreads were widening.

MV: The bid-ask, we obviously monitored that ourselves at the desk, bid-ask spreads in specific bonds, but it was not that extreme as it was during Covid. It was not as extreme as during the Great Financial Crisis. So I think we were not at a point where people were starting to look at the central bank for intervention or support policies because the Treasury themselves, they have a buyback program, they could step in. We have the Fed themselves who potentially could come to the rescue, but I think we were not there yet.

But obviously, the knee jerk reaction of people in markets is to look and think about, “oh, we need the Fed or someone else,” especially if you're in that position, you need to unwind. But I think if it would have continued for a couple of days, then definitely the central bank would come under pressure. Actually, on Friday, one of the Fed governors said “we are ready if it's necessary to intervene.” And that already helped a little bit to calm the situation.

EM: Verbal intervention.

MV: If you look at this week, the situation has calmed down a bit. Bond yields have also come down quite a bit. Equity prices obviously also have risen a bit further. So I wouldn't say the time is here to sound the all clear. Because yield levels are still quite a bit higher than they were at similar equity price levels from more than a week ago.

But I think it's also important to highlight that many investors have learned something from last week. So when there's a lot of turbulence, when it's stormy waters, you want to see what is the real safe haven. And I think the German sovereign bond market, for example, still functioned quite well in the sense that people were flying into German Bunds. So there are still quite some safe havens out there. Switzerland, Norway, Sweden, Germany.

EM: Bond markets or currencies?

MV: I'm talking about the bond markets now. I mean, currency is another angle there. But no for government bonds what we saw last week when Treasuries sold off, Bunds actually did quite well.

EM: But Bunds in particular, is this an endorsement of German fiscal policy or is it just simply by contrast with the US?

MV: The fiscal outlook in Germany – even though Germany obviously is going to borrow also a lot of money – is still much better than the fiscal outlook in the US and also in the UK, where debt-to-GDP levels are much, much higher than in Germany. Even if I take into account all the extra borrowing in the next ten years that Germany is going to do for defense spending and the infrastructure fund.

So I think fundamentals do matter. But I think also the trade policy and other policies of the US government, they're not making foreign investors more relaxed about investing in the US more generally – not just the Treasury market, but I would also say the equity market. So it's not just fiscal fundamentals, but it's also like the sea change in policies that are being embraced in the US, which I think have ramifications.

EM: And you're still having to build your framework to understand this and price accordingly.

MV: We are also foreign investors in US Treasuries.

EM: And how nervous are you?

MV: Well, I'm not nervous. It's always important to stay calm. You need to stay calm, especially if there's a lot of turbulence outside and it's stormy weather. No, but basically, from the start of the year, we already were positioned for this. We already were underweight longer-dated Treasuries. We were overweight shorter-dated Treasuries because we were not compensated as investors for the risks out there.

And that's our job, right? We need to preserve the capital of our clients. We need to be making the right decisions. So there has been a repricing in longer-dated Treasuries, but we are not sufficiently compensated yet, in our view, for taking a neutral or overweight position in longer-dated Treasuries. We have better alternatives with better risk-reward. So we're still underweight longer-dated bonds and overweight shorter-dated government bonds. And that position has actually helped us navigate the stormy, stormy waters last week.

EM: Martin, final remarks. So you said you've been positioned correctly, appropriately all along. But in the last week or so, have you adjusted your positioning at all?

MV: We have obviously used the cheapening of longer-dated Treasuries to lock in some profits, but we also have indeed become a bit more constructive on German Bunds because we now realize that equity markets have bounced, the situations have gone down. But this doesn't seem to be the end of the trade war. So we need to be ready for maybe a second wave of turmoil.

So we have become also a bit more constructive on maybe “the true safe haven”. And also we've taken a bit of credit risk because we haven't talked about corporate bonds. But corporate bonds got dragged along as well. Credit spreads also widened significantly. So we have started to add a bit of risk there. But more generally we remain cautious. But yeah, we are bond investors so that's our job to stay cautious. And every now and then we intimidate everyone.

EM: [Laughs] Martin, thanks. So good talking to you.

MV: Yes, it was a pleasure.

EM: A man calm, under extreme stress. And thanks to listeners, stay tuned for more market flash updates from Robeco.

Voice over: Thanks for joining this Robeco podcast. Please tune in next time as well. Important information. This publication is intended for professional investors. The podcast was brought to you by Robeco and in the US by Robeco Institutional Asset Management US Inc, a Delaware corporation as well as an investment advisor registered with the US Securities and Exchange Commission. Robeco Institutional Asset Management US is a wholly owned subsidiary of ORIX Corporation Europe N.V., a Dutch investment management firm located in Rotterdam, the Netherlands. Robeco Institutional Asset Management B.V. has a license as manager of UCITS and AIFS for the Netherlands Authority for the Financial Markets in Amsterdam.

10:30 CET

Insights on credit strategy and market trends

Christiaan Lever, Portfolio Manager

Although the US economy clearly outperformed Europe in recent years, the first quarter of 2025 clearly marked a shift away from the US market dominance. Both European credits and equities outperformed their US equivalents in the first quarter. In the recent volatile period, however, the regional differences leveled off and we took profit on our overweight Europe positions in investment grade and high yield credit portfolios.

Another key theme coming into this volatile period has been the growing gap between higher-quality and lower-quality credit. Also in recent trading sessions, BBB-rated bonds clearly outperformed BB-rated bonds. This divergence has created opportunities to benefit from attractive valuations in the BB segment, especially companies with resilient business models and less exposure to economic cycles.

The volatility in high yield also created room for tactical moves using highly liquid instruments like CDS indices to steer the risk profile of the high yield portfolios. For example, last Wednesday we increased credit risk (i.e. we increased our credit beta from 0.9 toward 1) via the CDX HY index when spread levels were close to 500 bps. As market sentiment improved strongly when the US administration announced a pause of reciprocal tariffs, our portfolios benefited from the increased risk positions. This example demonstrates our ability to use liquid instruments to time large spread moves intraday.

Elsewhere, interest rate duration was reduced on the Credit Income strategy from 3.8 years to 3.5 years following the tariff headlines, which proved timely as US rates moved up.

Across strategies, our approach remains cautious but flexible and focused on protecting gains, managing risk, and being ready to take advantage of opportunities as they arise.

10:00 CET

Inside last week’s fixed income moves

Martin van Vliet, Strategist

Market volatility last week highlighted a breakdown in typical risk-off dynamics. Despite a sharp equity sell-off on 8-9 April, US Treasury yields rose, pointing to possible liquidation, deleveraging, or waning confidence in Treasuries as a safe haven. High yield spreads widened to nearly 500 bps, and bond market stress reportedly influenced the US administration’s decision to pause reciprocal tariffs – underscoring policy sensitivity to market stability. In contrast, German Bunds held up as a traditional safe haven, reinforcing the bond market's broader role in shaping both investment flows and policy.

Three examples on how we navigated this volatility in government bond and aggregate fixed income portfolios as active managers:

Benefiting from steepening yield curves
Coming into this volatile period we have been underweight duration in longer-dated bonds and overweight duration in shorter-dated bonds in both US and German government bonds (these positions are often referred to as curve steepeners). This positioning proved effective during the recent bout of volatility, as longer-dated Treasury yields rose while shorter-dated yields declined and shorter-dated German government bond yields declined more than longer-dated bond yields. Strategies that benefited from these yield curve positions were among others Robeco Euro Government Bonds and Robeco Sustainable Global Bonds.
Risk-off adjustments in credit markets
In response to rising volatility, the team executed a set of risk-off trades. While CDS spreads in high yield rose sharply, some other spreads moved initially less pronounced. For instance, the BTP-Bund spread, representing the difference in yield between German government bonds and Italian government bonds with the same duration, clearly lagged. Also, the spread between German government bonds and interest rate swaps (the swap spread) lagged. Therefore, we adjusted the government bond portfolios by selling Italian government bonds, increasing exposure to German Bunds and hedging our existing swap spread positions. These actions helped reduce risk and enabled us to respond swiftly to market dislocation.
Selective credit re-entry
With credit spreads widening meaningfully and moving above the median spread levels observed in the past seven to eight years, we gradually began to add credit risk to our aggregate fixed income portfolios such as Robeco Sustainable Global Bonds. While the credit betas of such portfolios had been held close to one, the team started scaling in cautiously to benefit from wider spread levels while maintaining a balanced risk stance.

Transcript

Voice over: This podcast is for professional investors only.

Erika van der Merwe (EM): Welcome to Robeco's market flash. US tariff policy has taken another dramatic turn, and financial markets are in their latest wave of adjustment to the news. Joining me from London to assess the latest market events is Colin Graham, co-head of Robeco's Investment Solutions business. Welcome back Colin.

Colin Graham (CG): Hey, Erika. It's good to be back.

EM: Yeah. And I'm sure you've had a tough night. You really sent out commentary early this morning. So what exactly has happened? And how are markets reading the latest developments?

CG: Well, we'll find out later in the week when things calm down. But initially, when we've talked about what was going to stop equity markets falling, that was either Fed rate cuts or increased liquidity like QE from the Fed, or indeed, Trump blinking on his tariff policies. And what we got last night was Trump has blinked and therefore has reduced tariffs on the rest of the world. But he has kept his tariffs – and he's actually increased the tariffs – on China.

EM: So why this radical about-turn in policy? I mean you said he's blinked. I've seen his political supporters having a completely different view, saying that it's just brilliant negotiation skills that he's shown here. So why the change?

CG: Well, the negotiation skills... Yeah. They're saying “Oh yes, he's got every leader around the world lining up outside his office to do a deal with him.” So, you know, I hate to say this, but Trump still probably thinks he's in some sort of reality TV show here. But unfortunately, there are real-world consequences for these decisions that he's making. So what's the about-face? The about-face is the bond market. So there is no put on the equity market. There's a put on the bond market from Trump. He realizes that higher lending rates causes the economy to slow. You know, he's a property guy. He understands that. So the bond market is very important. Plus the debt is held by the lower-income structures within the US. So, higher bond yields affect his base more than lower equity markets. The second one: there may have been some dissent within the Oval Office and within his party. So Bessant definitely had a conversation with Trump about the efficacy of what he was doing. Secondly, I'm sure his party told him “if you want tax cuts, then you're going to have to make sure we get the votes in Congress”. And at the moment, you could start losing votes and therefore this is not going to pass. Therefore, you better think about what you're doing. And then thirdly, you know, Trump's second objective has been to isolate China. And this is the mandate he's run on. And these tariffs are actually having the opposite effect. And actually countries were moving closer to China's orbit, and away from the US, rather than causing China to get isolated.

EM: Colin, picking up on the point around the US bond market – US long Treasury yields. So initially with the announcement of the tariffs, you saw US long bonds rallying. So yields coming down. So it was almost mission accomplished. This is positive for the US electorate. However, we've seen bond yields whipsawing since then. What do those swings say about market sentiment more generally, and to what extent, though, have some of these shifts been just for technical reasons?

CG: Yeah. So for multi-asset 101, the diversification between equities and bonds is your number one investment thesis. However with equity markets falling and bond yields rising – when I say bond yields rising I mean bond prices falling as well as equity prices – you know, this doesn't bode well from that perspective. We think there's been two reasons for that. We were talking to our Asian colleagues, who are much closer to the market out there, and they’re saying that there has been some selling of Treasuries as countries have been trying to protect their own economies, protect their currencies, and divest away from US treasuries. The second one is where we see margins rise, and the calls from brokers to post more collateral for leveraged positions at hedge funds. You know, we've talked about this in one of the earlier podcasts. The brokers and the clearinghouses are questioning whether bonds are necessarily enough collateral and whether you actually have to post cash rather than bonds. And so this has moved people to selling their bonds to get cash. And, you know, that's one of the reasons we saw such violent movements in the more fragile bond markets like Australia, the UK, New Zealand rather than Germany, who's still seen as a risk-free asset.

EM: But that begs the question, then, are Treasuries and US Treasuries in particular still a safe haven for global investors?

CG: I think in the short term, then you have to still assume that. However, there are cracks. And if you start saying that Treasuries are no longer a safe-haven asset, then you have to go back to your assumptions about your strategic asset allocation and all the views you have on risk premiums. And I think that will take a much longer time to seep into investors psyche than today. But you could see that there’s cracks appearing in the rock-solid Treasury market’s safe-haven status.

EM: But it also goes back to a point you made earlier this week in the first podcast. In this episode, Colin, where you said we could be facing a complete rehaul of the way the global economy and financial markets work.

CG: Yeah. And I think the blinking on the tariffs really sort of said, okay, we're not there. And we've seen such polar opposites that you get one little change, and then everybody runs from one side of the boat to the other side of the boat. But remember, the Titanic is still on a tariff course. So tariffs are still higher now than they were. So, okay, they're not as bad as announced. But as you said Erika, this is the art of the deal. And, you know, this is what's been lauded by the staunch Republicans saying, this is all part of the process.

EM: And part of the plan. Now, do you think there is hope for a negotiated de-escalation with China in particular. But of course there's Europe, there's Canada. So is there hope for this complete return to the way things were before. Can we put the genie back in the box?

CG: I don't think so. I think Pandora's box has been opened on this one. And Trump's just letting hope out as the final ghost to come out of Pandora's box. So, in our view, China seems very locked in to try tariffs and escalation here. They're very clear that they want to defend this. They see it as an existential risk to their way of life. And so, you know, I don't see any de-escalation there. Yeah, they might cut the tariffs back a little bit, but the direction of travel is set. Europe might be a bit more pragmatic. The Canadians, you know, I think they started this pushback. And I think they'll continue to push back. But what really highlights to me is that I don't think the Republican Party and Donald Trump really understand the cultures of these countries. And if he understood that, then I think he would think about making different decisions. So, let's watch this space.

EM: So with China willing to double down back. to fight this till the end, they've got the firing power to keep going?

CG: Yeah. And we've seen that they're having a meeting this morning, the Communist Party. And they are thinking about stimulus. And we know that presidency has gone to and is going to their trading partners in Asia and Southeast Asia. And this really means that China is very happy with the orbit that it's in. Yes, it's going to hurt, because the export part of their economy is not going to work. However, for many, many years, many economists have said that China has to rebalance away from manufacturing to more domestic demand. So this could speed up the process. And therefore, you know, that could actually make China a lot stronger in the future, because it's a self-sustaining economy. So it can create its own demand. And therefore you get the increased bipolar world that we've been talking about in our five-year Expected Returns for the last couple of years.

EM: So it's clear uncertainty remains. Confidence has sunk, it hasn't been rekindled. Businesses’ CapEx plans hang in the balance. Recession risk prevails. How do you read that? Are you willing to commit to, for instance, your growth outlook?

CG: So we've had a investor meeting already this morning. And, there was a difference of views around the table, which is great because we're a multi-asset team, so that's what you expect, but we're holding steady now. So we're underweight equities, we're underweight credit. And we have a long gold position and we're overweight cash. So we're more willing to see where this goes before we put a more defensive tilt on our portfolios right now. We think it could go further. But again, you know, we're at the mercy of announcements coming out of the US.

EM: Colin. Thanks. Great insights, as always from you.

CG: Thank you very much, Erika. Talk again soon.

EM: Yes. Well, perhaps. Hopefully not. Um, and to listeners indeed on that point, stay tuned for more market flash updates from Rebecca as the events unfold.

Voice over: Thanks for joining this Robeco podcast. Please tune in next time as well. Important information. This publication is intended for professional investors. The podcast was brought to you by echo and in the US by Robeco Institutional Asset Management, US, Inc., a Delaware corporation, as well as an investment advisor registered with the US Securities and Exchange Commission. Robeco Institutional Asset Management US is a wholly owned subsidiary of Orix Corporation Europe N.V., a Dutch investment management firm located in Rotterdam, the Netherlands. Robeco Institutional Asset Management B.V. has a license as manager of Ucits and AFS for the Netherlands Authority for the Financial Markets in Amsterdam.

WEDNESDAY, APRIL 09

17:00 CET

Update on market and positioning of Robeco High Yield Bonds strategy

Sander Bus, CIO High Yield, Portfolio Manager

Evolving tariff policy and market response
President Trump's tariff policy has evolved from a negotiation tool to a committed policy, resulting in a fierce market sell-off. This has resulted in the high yield market pendulum swinging from complacent to capitulation with indiscriminate selling. As a result, high yield credit spreads have widened significantly, moving from record lows to levels at or above long-term medians.

Increase beta while maintaining quality approach
As contrarian investors, we aim to capitalize on wider, more attractive credit spreads despite the current macroeconomic uncertainty. To do this, we gradually increased the credit beta towards 1.0 through CDS indices (CDX), which are highly liquid instruments that tend to react faster than cash credit markets. In the early stages of a sell-off, CDX spreads typically widen more quickly; in the second phase, as fund flows turn negative, cash bond spreads tend to widen further due to the addition of a liquidity premium. Therefore, we consider CDS indices to be well suited to increase credit risk in the current market environment.

We continue to follow a quality-biased approach, remaining underweight distressed segments and maintaining a preference for European over US high yield.

15:00 CET

The shadow of US exceptionalism

Peter van der Welle, Strategist Sustainable Multi Asset Solutions

The tariff tango continues. On April 9, China faced a 104% tariff on its exports to the US, following a series of retaliatory tariffs. This tit-for-tat dynamic has led to significant market disruptions, with the S&P 500 losing over 20% since February.

The latest update by strategist Peter van der Welle argues that the US trade deficit is a result of domestic economic factors rather than trade policy alone. Trump's tariff policy is criticized for being inconsistent and conceptually flawed, with errors in the calculation of reciprocal tariffs.

First, as many economists have pointed out, trade balances are the result of savings/investments ratios, not of trade policy. Actions undertaken by domestic actors (consumers, producers) matter as much as the actions of foreign entities. China’s accession to the WTO in 2001 certainly posed a negative shock to the US trade balance by lowering global demand for US exports, aggravated by an undervaluation of the renminbi and state aid to Chinese exporters.

Internally inconsistent
Second, Trump’s tariff policy is internally inconsistent, as tariffs can’t be effectively used as both a negotiating tool and a tax revenue tool simultaneously. It’s either luring companies back into the US to rebuild the US manufacturing base and forcing other countries to lower their tariff rates in exchange, or it means sticking to tariffs as an important revenue source, like the US pursued in the late 19th century.

Third, the details of Trump’s tariff policy contain conceptual flaws. The reciprocal tariffs that some 60 countries now have to deal with have nothing to do with reciprocity. as they are clearly in excess of the tariffs that countries are levying the US on its exports. This excessive, retaliatory punch is the result of establishing the reciprocal tariff rate to be equal to the ratio of the bilateral trade balance a country has with the US as a percentage of imports from that country.

Atlas is now Adrift
The disruption in global trade that is building now shows that the tectonic plates of the global economy are about to shift. Our medium term bear case, ‘Atlas Adrift‘, that we forecast in Expected Returns 2025-2029 has come to the fore. In this scenario, we foresaw an accelerating transition towards a multipolar world, creating stagflation. We have upgraded the probability of this scenario now from 30% to 45%.

Transcript

Colin Graham answers five client questions, during a Market Flash podcast with host Erika van der Merwe.

Firstly what is your overall view on the announced tariffs and their economic implications. Do you consider them to be a game changer. And has it had an impact on your long term outlook or even your investment process?
I think that the rise in tariffs has really called into question whether the benefits of global trade and free trade will go into reverse. So we have to really understand whether we have to throw away all the models that we've been using on economics for the last 40 years, or whether we actually or this is just another one of these market spasms. And I think this has to do with the tariffs. So, do we think it's a game changer at the moment? It's too early to tell because we don't know the end point of where the US is going with its tariffs. And I think that's what the uncertainty is getting priced into markets right now. But I think you've seen the sales side in terms of investment banks have been raising their probability of recession in the US. And indeed, we have put a higher probability on the idea of a bear market outcome in 2025. Although it's still below 50%, it's much higher than it was three months ago. So yes, we have to be a lot more cautious in how we approach our investments for clients.

So at the company level, how are you modeling the effect of tariffs on consumer focused companies in particular? Do you expect these companies to be able to pass on higher costs to their end consumers? Or do you believe they'd be able to absorb them or absorb them to a degree? What is the expected impact then on margins and earnings?
If we take the Covid example where you saw a massive supply shock to the global economy, then you saw that corporates basically passed on those prices. So this could be another case where you see the cost of goods getting priced and passed on to the end consumer, which again would be very bad for consumer sentiment in consumer driven economies like the US. So at the moment we don't know. The other thing with tariffs is that CEOs and other people trying to make investment decisions don't know what the landscape is going to look like over the next six months or even three years. So making big capital allocations on their businesses is going to be difficult, especially in the short term.

The US earnings season is about to kick off and what a time for that to happen. Whatever they say or whatever, their report will still reflect conditions from before the escalation of the tariff war. What can investors expect in terms of the messaging from CEOs and CFOs at these reporting events?
I think the earnings season should be okay, but I can imagine that CFOs and CEOs will want to bring forward the uncertainty around their earnings going forward. And so we always talk about the earnings have been delivered, but what's the forward guidance? What are the CEOs, the CFO seeing about their future earnings potential? And this is where it becomes very murky in terms of what is going to happen. And that really goes back to the previous question on margins. This is where we get the clarity. Will they be able to pass on these additional costs, the tariffs, to the end consumer, or will they have to take it in their margins? If they take it in their margins, what do they do then? We've seen a couple of companies come out over the last couple of days and say they're going to cut their CapEx and actually go to do stock buybacks. So that's a very different outcome than we've seen over the last two years where you've seen these companies said they're going to spend on AI. And then they get rewarded by the market with share prices going up. So again, we feel that we're a turning point here, but without much support. And what do I mean by support? With Covid, you saw that interest rates fell and fiscal stimulus ramped up. But that's very difficult to see right now. Given that, firstly, the chairman of the FOMC in the US, setting interest rates on Friday said “the economy is okay and employment is okay, so we don't need to cut rates”. You've also seen that the bill to make the Trump tax cuts permanent was going to pass Congress. But that's fine, that's already in the market. So there has to be something else. There has to be something on top of this in order for there to be additional fiscal support, in order to allow consumers and corporates to ride through the storm.

Then taking the perspective across to the fixed income market and the credit market in particular, what's your assessment of the impact of these tariffs on credit spreads? Do you expect a broad repricing of risk in corporate credit or a more sector specific reaction?
We've had the view for several months that credit spreads IG and high yield have been very, very tight and therefore not pricing in much risk going forward. And we can see that tariffs have affected how investors are looking at those spreads. And we've seen spreads blow out. One area of interest that we've looked at where we see spreads are cheaper than the developed market, IG and high yield, is emerging market debt. But the one headwind we see here, despite the valuations being cheaper, has been the US dollar. So if we start to see the US dollar weakened through these tariff announcements, then this will turn from a headwind into a tailwind for emerging market debt and actually releasing that value that we can see in those markets. And the other area that we look to in terms of more sector-specific views is looking at what's happening in the trade financing area. And we can see that from 2008, where you started to see pressures on banks and credit markets, that trade financing just dried up completely. And that's what sent sort of a financial market event into the real economy and trade just drying up overnight. So that's an area that we're definitely monitoring.

The fifth and final question, it's more along the same lines, but perhaps expecting you to go a little deeper, being more specific, are you currently closer to being a buyer or a seller of credit and then in which segments or sectors specifically?
I'm going to have to dodge that question because we've been hedging - so we've been holding the underlying bonds because our high yield teams and our IG teams have very much a quality bias on what they hold. So we've been using tools to hedge the overall market for high yield, which means we've been short the very low end, the CCC's part of the of the market. So if we see rates come down, if we see margins continue to be okay, then there is opportunity here to take those hedges off and say: actually we're quite happy to hold high yield unhedged in the portfolio. So I would say that the first step would be to take your hedges off, and then we'd have to see if the spreads have really become attractive enough to go along high yield at this at this juncture.

15:00 CET

The parachute of low volatility

Dean Walsh, Portfolio Manager
Pim van Vliet, Head of Conservative Equities and Chief Quant Strategist

As uncertainty increases, investors prioritize speed over price and are willing to pay more, while market makers make wider spreads to be compensated for the uncertainty. Many market participants are now repositioning their portfolios, leading to higher trading volumes. This results in markets feeling easy-to-trade but with investors incurring higher trading costs while doing so.

In short, the market is very liquid right now, but it is not the kind of liquidity that leads to cheaper trading costs. Hence at Robeco we are approaching with caution; we are long-term investors, and we will be patient and prudent with trading during these volatile times.

Figure 1 – The VIX Index has reached the highest point since Covid

Source: Bloomberg, Robeco

How factors have fared
In the past few days, one factor has clearly stood out in developed markets: low volatility. The factor is behaving as designed, much like a parachute: delivering on its promised aim to ‘win by losing less’. Other alpha factors showed mixed results. Robeco’s analyst revisions as well as our enhanced residualized momentum factor outperformed classic price momentum, which is more sensitive to sharp trend reversals such as the current one, despite a strong 2024.

Strategies avoiding mega-cap growth stocks – which have dominated the MSCI World the past decade – held up better. This is reflected in the equal-weighted MSCI World outperforming the cap-weighted index*, bucking recent trends. Value, which typically avoids the high-multiple mega-cap technology names, also offered some relative protection during the drawdown. Conversely, quality did not deliver during this sell-off, unlike a year such as 2020, when it offered some protection compared to the broad market index.

In emerging markets, factor performance was less extreme. Low volatility was the standout factor, followed by value adding some protection as well. Momentum held up better in emerging markets than in developed markets, with a less sharp style reversal, but again, investors should be cautious of the impact of closed markets. As in developed markets, quality has not offered protection and is one of the weakest performing factors.

*The value of your investments may fluctuate. Past results are no guarantee of future performance. In reality, management fees and other costs are also charged.

14:00 CET

Close to capitulation, but not there yet

Colin Graham, Co-Head of Sustainable Multi Asset Solutions

The fragility of equity and bond markets has been highlighted by recent tariff announcements, and investors remain uncertain about where tariff levels will settle, so valuation support for risk assets is far away. This situation may lead to a structural break in economic and analyst pricing models, making current models less predictive.

The S&P 500 had its worst streak since March 2020, and unlike with the onset of Covid, this time there is no monetary or fiscal stimulus support on the horizon. Investors moved from selling profitable positions before Trump’s ‘Liberation Day’ to indiscriminately selling anything after it, sending all major equity industry sectors in Europe and the US into the red last week. Leverage ratios at hedge funds and margin calls for leveraged positions are increasing, exacerbating the sell-off. We may be close to the final short-term capitulation phase, but are not there yet.

Earnings season begins
US earnings for Q1 start this week, representing a period before the tariffs are enacted. Current conditions may be OK, however, clarity around the path of earnings is murky, adding more uncertainty for investors.

The multi-asset team has raised the downside scenario probability to just under 50%. If the tariff structural break was not ongoing, we would be looking to add risk, through equity and credit. However, the second-round effects on earnings and consumers suggest that valuation support is still a long way below current price levels, and the probability of a global recession is rising fast.

In portfolios we have been slightly underweight equities and underweight credit, with a tilt out of US equities. We are still long gold (in portfolios where restrictions allow) and have been raising cash positions. In our current outlook, a bounce in equity markets will be used to reduce equity beta further and rotate into more defensive and cheaper parts of the cross-asset universe. For stock and credit pickers, the indiscriminate sell-off will provide increased opportunity to generate alpha for quant and fundamental approaches.

Portfolio positioning for a generic 50% global equity and 50% global bonds (agg) hedged strategy.
Source: Robeco, 8 April 2025.

13:00 CET

There will be winners and losers – as always

Joshua Crabb, Portfolio Manager

The beginning of April has seen tariffs imposed at the upper end of the expected range. Given Trump's negotiating style, starting as high as possible should not have been surprising. However, this has sent shockwaves through global markets, leading to significant declines in equity markets worldwide. At the start of the year, our primary concern for equity markets was high valuations, particularly in some parts of the US market and the global IT sector. The current turmoil has led to much speculation about the macroeconomic impacts and associated top-down panic selling.

Despite more reasonable valuations, Asia has not been spared from the market downturn. However, post-selloff, Asia appears to be very reasonably valued. Unlike the US, Asia does not face the same inflationary pressures due to tariffs. Many Asian countries are likely to negotiate deals to mitigate the tariff impacts, and they can use monetary and fiscal stimulus to offset these effects. Some countries, sectors, and companies will experience limited tariff impacts. As always, there will be winners and losers in this process. Therefore, it is crucial to remain calm, focus on the fundamentals, and take advantage of the volatility to identify medium-term alpha opportunities as they arise. Our APAC strategy still shows good value, with metrics like 12.4x earnings, 6.5x cash flow, 1.2x book value, 12.5% ROE, and a 2.9% dividend yield.

The likes of ASEAN and India will be less impacted by tariffs, yet are largely treated the same. When you consider that India had recently derated quite a bit, this will create some stock opportunities in that market. Some markets like India (less to lose) and Japan, are also likely to do deals sooner that could benefit them. Japan already announced negotiations and rebounded strongly today.

8:00 CET

Outlook for credit markets

Erik Keller, Client Portfolio Manager

The resulting tariff uncertainty, combined with broader economic instability, has become a key driver of stagflation concerns and a potential turning point in the story of US exceptionalism. A number of US growth indicators are now pointing to a slowdown, while inflation expectations remain elevated – a toxic combination for risky assets.

Relative to the US, the outlook for Europe appears somewhat brighter. Although a recession in the US would inevitably weigh on Europe, the region benefits from newly announced fiscal stimulus and retains the ability to deploy additional measures if needed. Europe may lose the US as a trading partner but still has access to global markets.

In contrast, if US tariffs persist, the country risks isolating itself economically. For once, US policy uncertainty is higher than European policy uncertainty, and that will affect corporate decision-making. In an environment of elevated uncertainty, the option value of waiting rises – businesses are more likely to postpone long-term capital expenditures.

The technical tailwinds that have supported credit markets over the past two years have now reversed sharply. With total returns turning negative, we may see outflows, reinforcing a downward spiral. However, such dislocations often create opportunities to increase beta at attractive entry levels. We expect such opportunities to emerge in the coming quarter.

High yield
The portfolio maintains an underweight risk profile with a focus on higher quality, including underweights in lower-quality CCC and B high yield. Additionally, the strategy remains overweight in European high yield and underweight in USD high yield. Currently, market liquidity is imbalanced – selling is difficult, while buying is relatively easy. During periods of market distress like this, markets often overshoot.

Global credits
Thus far, the lack of decompression in investment grade (IG) credit has been fairly remarkable. Everything is being marked wider in a similar fashion, with no real differentiation by credit quality in IG – yet. Similarly, we’ve been somewhat surprised by the lack of sectoral dispersion. Spreads are wider across the board, whereas one might expect more domestic, non-cyclical, tariff-remote sectors like utilities to strongly outperform. Energy has been an obvious laggard given the moves in oil, and we’re also seeing substantial moves in certain auto and cyclical names.

14:00 CET

Global equities: Turning more defensive

Hauke Ris, Co-Head of Robeco’s Sustainable Global Equity team and head of the Fundamental Equity CPM team

As the Trump Administration tries to reshape the global world order, markets are witnessing a regional and factor rotation away from US growth. In unpicking the consequences of this regime change, the current volatility might last longer than many hope for, as the dangerous mix of higher inflation and recession is not unthinkable anymore.

It’s too early to properly assess the exact consequences and potential side effects of US policy making. Consequently, this has resulted in stalling flow momentum for global equities, with investors shifting to safe havens such as cash, gold and Treasuries instead.

Our outlook for developed equity markets is therefore very cautious for now. Lower economic growth and higher inflation are not good for equity markets, and they will have repercussions for earnings growth as well.

Portfolio positioning
We will continue to add quality names to the Robeco Global Stars Equities strategy with a specific focus on high recurring free cash flow (FCF) generation. We intend to continue to raise the overall FCF yield of the portfolio to further increase defensiveness.

We had already made the portfolio more defensive ahead of the tariffs announcement by raising cash and lowering the overall portfolio beta. The latter was achieved by tilting to the more defensive end of the spectrum by further trimming our US Technology sector position (we are now underweight the Magnificent Seven) and increasing our weight in areas such as Healthcare. We also took more weight out of the US and redeployed that mainly into Europe.

9:00 CET

Markets are acting ‘tariffied’

Mike Mullaney, Director of Market Research, Boston Partners

The uncertainty surrounding Trump’s wave of tariffs has led to significant market volatility, with the S&P 500 Index experiencing a 5.62% loss in March, its worst monthly performance since December 2022. Investors have sought safer assets, resulting in gains for US Treasury bonds.

There is a great deal of negative consensus among economists regarding tariffs, which are expected to impede global trade and undermine GDP growth. The risk of a near-term recession in the US has increased, pushing investors toward safer investments. The S&P 500 fell by 4.28% in the first quarter, while the Bloomberg US Aggregate Bond Index gained 2.78%.

Value stocks outperformed growth stocks across all market capitalization ranges, with the Health Care sector contributing most to the better performance of the Russell 1000 Value Index. International stocks, particularly those with less exposure to Big Tech, outperformed US stocks*.

Looking ahead, we think there is plenty more uncertainty to come regarding the tariff situation, and what we’ve learned so far clearly wasn’t the news that the stock market was hoping for; the level of tariff retaliation by the countries that the US is targeting remains a substantial wildcard. Investors should not expect any significant reprieve from the heightened volatility that the markets are currently experiencing, at least on a short- to mid-term basis. Signs of any deterioration in economic activity (or not) will determine the next leg of both the global stock and bond markets.

*The value of your investments may fluctuate. Past results are no guarantee of future performance. In reality, management fees and other costs are also charged.

FRIDAY, APRIL 4

9:00 CET

Impact of US reciprocal tariff announcement on Quant Equities

Jan Sytze Mosselaar, Portfolio Manager

The market reaction to President Trump's extensive tariff announcement on 2 April was extensive. The tariffs, which include a baseline 10% on most imports and higher rates for close trading partners, caused the S&P 500 to drop nearly 5%, marking its worst day since the Covid pandemic.

The hardest-hit sectors included technology, retail, and financial services, while healthcare and utilities remained stable or gained. European luxury goods manufacturers and carmakers also suffered significant losses. But it is still possible to outperform such a volatile market.

Robeco's Conservative Equities strategies outperformed the market, with Global Developed Conservative Equities beating the market by 1.8% and Emerging Markets Conservative Equities by 0.68%*. These strategies benefited from their focus on low-risk stocks, which provided downside protection. In contrast, the Enhanced Indexing and Active Quant strategies in both developed and emerging markets experienced minimal impact, with relative performance losses within a narrow range.

While the momentum and quality factors performed negatively, the value factor showed positive performance. The impact of the tariff announcement on Robeco's conservative quant strategies has been limited so far, but close monitoring of the market is still needed, due to the volatile and complex nature of the situation. The Quant Equity team remains confident in their current positioning and continues to align with their model.

*The value of your investments may fluctuate. Past results are no guarantee of future performance. In reality, management fees and other costs are also charged.

THURSDAY, APRIL 3

8:00 CET

Trump’s tariff tango, Act 2: Dancing in the dark

Peter van der Welle, Strategist Sustainable Multi Asset Solutions

Markets have been spooked after President Trump announced a tariffs package that was much bigger than expected. The package includes universal tariffs, reciprocal tariffs, and a 25% tariff on all imported cars. Overall, it is expected to raise the effective average tariff rate to 22%, the highest since the Smoot-Hawley Tariff Act of 1930.

The policy aims to rebuild the US manufacturing base and address perceived trade imbalances. However, the market reacted negatively due to the lack of clarity and the potential for significant economic disruption. The tariffs are seen as self-defeating, likely to increase inflation and reduce US consumer purchasing power. Our viewpoint highlights the risk of retaliation from major trading partners like the EU and China, which could further escalate trade tensions.

The economic implications are significant, with potential stagflationary effects and a weakening US consumer. The tariffs could lead to higher import prices, lower corporate profit margins, and increased unemployment. There is also the potential for higher wages due to inflation, though this is uncertain.

Overall, Trump's tariff policies may lead to a contraction in global trade volumes and increased economic uncertainty. The market's initial positive reaction quickly turned negative as the full scope of the tariffs became clear. Our view is that the tariffs are unlikely to achieve their intended goals and may instead exacerbate economic challenges.

Trump’s tariff tango, Act 2: Dancing in the dark

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