Pension funds need to “sit tight and remain calm” amid the ongoing US tariff turmoil, says Quantum Advisory.
On 2nd April, the US unveiled ‘reciprocal tariffs’ on trading nations, set at levels far higher than anticipated and triggering significant declines in global equity valuations.
While equities have since somewhat bounded back, particularly in the wake of President Donald Trump announcing a 90-day pause on the implementation of higher tariffs, there remains fear of what comes next, the pension and employee benefits consultancy said.
Paul Francis, principal investment consultant at Quantum Advisory, said: “Following the announcement of the tariffs, global markets took a significant hit. The sharp and rapid decline signals a substantial shift towards a new economic order.
“While this downturn is likely solely attributable to the tariffs, some analysts argue that the decline began earlier this year, triggered by DeepSeek’s open-source AI model. Perhaps that was only the embryonic phase of what now appears a full-on trade war between the two superpowers.
“Regardless, we now face the consequences, and schemes need to consider their options, particularly with regards to equity market diversification and positioning. The equity relief rally followed the US pausing the punishing rates of ‘reciprocal tariffs’ it imposed on countries other than China. It comes as a welcome development for many. But fear of what comes next remains.”
Francis said higher tariffs erode international competitiveness, which in turn reduces global trade, leading to job losses, rising prices and a slowdown in economic growth. In the UK, the new tariffs have already wiped out the modest fiscal headroom projected in the Spring Statement and could lead to the Chancellor being forced to break fiscal rules.
Francis continued: “It’s going to take a while for the global market to adapt and, as with all thing’s investment, things could still change, both positively or indeed negatively, and quickly. Volatility of returns is high, which isn’t necessarily bad, as it presents opportunities for profit.
“However, being on the wrong side of a trade can be costly. Making drastic changes to investment strategies based on recent developments would be a bold move. Now is not the time for major shifts. Uncertainty affects all asset classes, and there’s no clear safe haven. Bond prices may fall further, and moving to cash could lock in losses and miss potential gains in equities.”
For those considering asset class transitions, Francis said they must proceed with caution.
“The risk of being out of the market is significant, especially with markets moving 5% in a single session. Pension funds should lean heavily on their advisers at this time,” he added.
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