Produced in partnership with Orbis Investment Management.
Comments and policy decisions by the Trump administration have wreaked havoc on equity markets, sparking fears of a global recession.
With markets and investors rattled, the soft landing that governments and central banks had largely secured prior to the new US presidency appears to be at risk, as concerns rise about the impact of tariffs on inflation and economic growth, Orbis Investment Management investment specialist Eric Marais said.
“We had this window of time where a soft landing looked very likely and I think it’s now being called into question a little bit,” he told Professional Planner.
“What everyone’s trying to figure out now is the very immediate, direct impact [of tariffs] on the market and specific companies. These things are not that hard to understand at a surface level but what’s very hard to understand is level two and level three thinking [in terms of] what happens when reciprocal tariffs get put into place and how do those tariffs actually get absorbed across an industry, across a value chain.”
While the main focus of media and investment reporting is on US protectionism and tariffs, the other major area of interest is the Department of Government Efficiency (DOGE), which has been established to cut US government jobs and other spending, and is headed by the billionaire CEO of Tesla, Elon Musk.
Marais said significant amounts of fiscal stimulus, particularly through employment and welfare programs, has fuelled the US economy but, as the DOGE dials back government spending, the US will be on a “more even keel” with other economies.
“One of the reasons why the US economy has been so strong compared to other economies over the last five to 10 years has been because of, not just the monetary stimulus that has been pumped into the economy, but also the fiscal stimulus,” he said.
“Every dollar that the US federal government spends…one way or the other finds its way back into economies, and the vast majority back into the US economy.”
The combination of fiscal and monetary stimulus is a factor behind American exceptionalism, which is the belief that the US is distinctive and dominant, evidenced by the outperformance of the US economy and financial markets.
“My personal view is that US institutions remain pretty strong although there may be some cracks showing and they’re certainly being put to the test a little bit,” Marais said.
“From an equity market perspective…strong institutions and strong governance have definitely played a role in how strong US equities have performed over the last 10-15 years. However, US equities are pretty richly valued compared to other regions and so, where we sit today, some of those expectations are certainly priced in.
“Expectations do matter so if you have high expectations for the strength of the US governance and US institutions, and you start to see some cracks, it could be a long way to fall.”
CE/CPD accreditation:
To qualify for CE/CPD accreditation, you must watch all three videos listed below in full. Please ensure you have viewed each video before submitting for accreditation.
- Tariffs, trade wars and reverse globalisation
- The sustainability of US exceptionalism and is demand for AI even real?
- Keep calm and diversify
Accreditation will not be granted unless all three videos have been completed.
If you have watched all three videos, you are now eligible to apply for CE/CPD accreditation. Please click here for more details.
