In this week’s edition of The Weekly we cover the consequences of ‘Liberation Day’, emerging opportunities from heightened volatility, and importance of sticking to a proven investment process and investing for the long-term. We also have reaction from our WAM Global (ASX: WGB) team on the ground in New York.
Market Updates
‘Liberation Day’ reverberated through global markets in the latter half of last week with the S&P/ASX 200 Accumulation Index falling 3.9% and the S&P/ASX Small Ordinaries Accumulation Index falling 6.4%. Consumer staples was the only ASX 200 sector in the green, up 2.5%, while the energy sector saw the biggest decline, down 13.2%. Coles (ASX: COL) and Woolworths (ASX: WOW) were the best performing stocks, up 7.3% and 4.5% respectively.
Copper fell 14.2%, losing some of its prior gains albeit still up 7.3% over the past three months. Brent oil similarly fell 9.9%, down 12.6% over three months. U.S. markets came under pressure with the S&P 500 Index (large-caps) down 9.1% and Russell 2000 Index (small-caps) down 9.6%, with Thursday and Friday marking the worst two-day stretch in markets since March 2020. The MSCI World Index (AUD) fell 4.2%. U.S. Treasury yields generated positive returns during the week, benefiting from the ‘risk-off’ sentiment. The AUD fell 3.8% to 60.6 U.S. cents.
While Australia’s 10% baseline tariff was mild compared to many other countries, there remains the risk of second order impacts via our largest trading partners including China which received a 34% tariff on top of the existing 20%. Following China’s announcement that it will then impose a 34% tariff to the U.S., J.P. Morgan raised its U.S. recession probability to 60%.
What could all this mean for interest rates in Australia? Several banks have brought forward expectations for interest rate cuts with the market now pricing in four 0.25% rate cuts this year with the potential for one more. We run through potential scenarios for central banks below in our ‘In focus’ section.
Last week we had the privilege of engaging with shareholders that attended our presentations in capital cities around Australia and will continue to do so this week today in Hobart, before we head to Melbourne, Adelaide and Perth. We highlighted how we are focused on seeking out opportunities that are presenting themselves in the current market. Wilson Asset Management Chairman and Chief Investment Officer, Geoff Wilson AO, reminded us that investing is about time in the market rather than timing the market – and you can’t benefit from the peaks if you weren’t investing through the troughs. Ahead of the tariff announcements, we have been positioning the portfolios towards higher quality, more defensive sectors and companies, and reducing exposures to higher risk names. While volatility is unlikely to abate in the coming weeks, we’re sticking to our proven investment process, capitalising on opportunities and picking up quality names at attractive valuations. As Warren Buffett said, “Be fearful when others are greedy, and greedy when others are fearful.” We explore three resilient stocks below plus a wind farm held in the WAM Alternative Assets (ASX: WMA) portfolio. Key watchpoints for the week include monitoring retaliatory tariffs and commentary from central banks.
In Focus: Impacts of ‘Liberation Day’
On ‘Liberation Day’, U.S. President Trump announced a new regime of tariffs. For each country, tariffs have been calculated as the greater of 10% or the percentage excess of bilateral imports over exports. Trump has suggested that exemptions are possible in response to “phenomenal” offers from trading partners, with tariff retaliation strongly discouraged. Apart from exemptions, the primary way that has been afforded to the private sector to mitigate tariffs is to re-locate production to the U.S. from abroad.
If Trump’s new tariff regime is to be interpreted literally, the effective tariff rate will return to a level not seen since the very early 1900s. The good news is that heavy tariffs could supplement income taxes, with tax cuts supporting private sector demand. From a central banking perspective, the key debate is whether tariffs will result in higher-for-longer inflation. If it does, it will be more difficult for central banks to cut rates, despite the market volatility we are seeing, and the uncertainty shock to the private sector. If it proves temporary, the prospect of cuts could be reassuring to investors.
Near-term, there is scope for reversal of recent weakness if Trump can reduce trade and policy uncertainty. Longer-term, U.S. bond market inflation expectations are subsiding and rate cuts are being priced in. Further, while manufacturers are bracing for higher input prices and tariffs, they are so far not reporting supply chain disruptions in the form of longer delivery times or growing order backlogs. From an Australian perspective, tariff-related inflation should be relatively low compared with other major trading partners, giving the RBA more scope to cut rates than its global counterparts. Importantly, the health of the Chinese economy matters disproportionately to the local outlook, with the currency also acting as a buffer against global shocks. In the circumstances, there are reasons to be optimistic longer-term, even though we are seeing material global uncertainty at present. As mentioned earlier, volatility is creating interesting opportunities and cheaper entry points into the equity market.
Stock Watch
Transurban Group (ASX: TCL)
Transurban ended the week up 2.9%, outperforming the S&P/ASX 200 Accumulation Index by 6.8%. It is a beneficiary of potentially stickier inflation due to its CPI-linked pricing and will further benefit from lower debt costs as interest rates continue to come down. As a toll road operator, Transurban is resilient to a slowdown in global growth with its defensive characteristics making it appealing in volatile environments.
Held in: WAM Leaders (ASX: WLE)
Emerald Resources (ASX: EMR)
Emerald Resources, an explorer and developer of mineral reserves in Cambodia and Australia, announced it is now debt free following the final payment in the US$60 million Okvau Debt Facility. It is in a strong financial position to deliver on the Dingo Range Gold Project in Western Australia and the Memot Gold Project in Cambodia. The stock outperformed the S&P/ASX Small Ordinaries Accumulation Index by 6.4% last week.
Held in: WAM Capital (ASX: WAM) and WAM Research (ASX: WAX)
CME Group (NASDAQ: CME)
CME Group is a leading financial exchange that facilitates trading in futures and options across interest rates, equities, FX, energy and commodities. March volumes rose 27% year on year, setting new quarterly average daily volume records across several products and highlighting CME as a clear beneficiary of tariff uncertainty and market volatility. Meeting with the company in March reinforced our view that is has a high-quality management team and is well positioned to capture opportunities in current markets. CME outperformed the S&P 500 by 6.1% last week.
Held in: WAM Global
Snowtown Wind Farm II (Palisade Investment Partners)
The Snowtown Wind Farm II is a 270-megawatt wind farm located on the Barunga and Hummocks Ranges in South Australia, generating on average enough energy for 175,000 households per year. The energy generated by the wind farm is contracted to Origin Energy through a long-term offtake agreement to 2035, providing stable cash flows, protection against inflation and returns largely uncorrelated to public markets. WAM Alternative Assets invests in the Snowtown Wind Farm II through its investment partner Palisade Investment Partners, alongside several Australian super funds and institutional investors.
Held in: WAM Alternative Assets
Index returns performance table
The week ahead
With markets volatile, we expect to hear announcements from U.S. policy makers, whether on trade negotiations, or remedial policy actions to contain turbulence should signs of funding stresses emerge.
Update from New York: Reaction to ‘Liberation Day’
WAM Global Senior Investment Analyst William Liu and Investment Analyst Will Thompson gave their reaction to ‘Liberation Day’ and what they are seeing first-hand on the ground in New York. You can watch their full insights here.
WAM Income Maximiser: Apply now for your Priority Application
As a member of the Wilson Asset Management family, you have a priority invitation to invest in WAM Income Maximiser Limited. The minimum investment for the offer is $1,500.
The offer will close this Friday 11 April 2025 at 5:00pm (Sydney time). The offer has exceeded the minimum subscription on opening, which has been met with strong demand from investors. With volatility front of mind for investors, WAM Income Maximiser’s investment portfolio of high-quality equities and primarily investment grade corporate debt aims to provide investors with portfolio diversification benefits, including reduced volatility.
To apply for the priority allocation, visit the Priority Allocation Application Portal for a copy of the Prospectus and its accompanying application form for completion.
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