In aggregate, international equity markets continued to outperform in March as some investors, concerned about tariffs, inflation and economic slowdowns, rolled out of expensive US stocks into foreign stocks with better valuations. For the full quarter, the MSCI ACWI-EX US market outperformed the US equivalent by almost 1000 basis points.
Driven by valuation and opportunity, investors turned to Europe in the first quarter of 2025. While concerns about the US economy abounded, Germany announced a €500 billion spending plan that is expected to stimulate growth in the region. According to Garth Friesen of Forbes, defensive, financial and infrastructure stocks attracted the most attention. Friesen also mentioned that European Equities outperformed the S&P 500 by the widest margin in over 30 years; however, there was a wide dispersion in developed Europe country performance. Spain’s index, who’s top three stocks include a utility and two banks, was the top performer according to MSCI, whereas Denmark’s, for which Novo Nordisk comprises over 50%, was down significantly.
The threat and uncertainty of tariffs weighed heavily on some other developed markets at the end of March. For instance, MSCI’s Far East Index, which is heavily weighted in Japan, was up only 1.36%. Canada was up only 1.3% and Australia was down 2.61%. Coming out of a recession and still struggling with high interest rates, New Zealand’s stock market was down 8.82%.
Regionally, emerging markets performed similarly to the ACWI-EX US. MSCI’s aggregate index was up 3.01% for the quarter. Despite China’s 15.06% return, the Emerging Market Asia Index was up only 1.44% due to poor performance from India and horrible returns for Taiwan, Thailand, Malaysia and Indonesia. Like its developed counterpart, EM Europe was strong – up 16.80%. Latin America also performed well – up 12.82%.
Unfortunately, many hard-won gains were erased and losses were accelerated on April 3rd, also known as “Liberation Day”, when President Trump announced 10% tariffs on all imports into the United Sates, 20% on goods from the EU and additional tariffs for Chinese imports of 34%.
The purported reasons for imposing tariffs include protecting domestic industries and their employees, stimulating onshoring, restoring misshapen balances of trades, encouraging trade negotiations and raising funds for the government. Following Trump’s action, investors responded to the potential negative consequences of higher inflation, slower or negative economic growth, supply chain interruptions and retaliatory tariffs. Equity markets fell around the world. In the US, the Dow Jones Industrial Average lost 7.9%, the S&P 500, 9.1% and the Nasdaq, 10% by the end of the week.
It was a sobering end of the week for investors, but we have been through market corrections before and know that there are high quality, resilient companies trading at attractive valuations not seen for years. We understand that the situation will be fluid and the impact of tariffs will be varied, so we will sharpen our pencils, dig through reports, dialogue with managements and experts and fine-tune our portfolios.
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