President Donald Trump is set to impose so-called reciprocal tariffs and other levies on what he has labeled as “Liberation Day”. Business leaders and policymakers are on tenterhooks over what the president might introduce this afternoon. According to reports as of yesterday, Trump’s team was still debating what the reciprocal tariffs would look like. CNBC Africa is joined by Patrick Mathidi, Head of Multi Asset Strategies at Aluwani Capital for more.
President Donald Trump is set to impose so-called reciprocal tariffs and other levies on what he has labeled as “Liberation Day”. Business leaders and policymakers are on tenterhooks over what the president might introduce this afternoon. According to reports as of yesterday, Trump′s team was still debating what the reciprocal tariffs would look like. For more, we are joined by Patrick Mathidi, Head of Multi Asset Strategies at Aluwani Capital. Patrick, thank you so much for your time. I mean, we've been waiting for this day, probably even though we've taken stock of Q1 and having to deal with all of that, but we are still waiting ahead to see what to expect in terms of announcements. In terms of conversations that you've had with clients and investors, what have they looked like in preparation for Liberation Day? Yeah, good evening, Ms. Darshan. Thanks for having me. Look, it's been very, very, very difficult, you know, since President Trump took office on the 20th of January this year, and then started promulgating a whole lot of legislation and doing tariffs. A lot of those, some of them have actually been reversed and taken back. But on a day like this today, we expect a lot more to come. It is still not clear whatsoever as to what he'll say but what we do know is that they will be able to pause trading. So this time around, you know, he'll say, I need A, B, C, D, but then I can hold back on B and C if you give me X, Y in return. So he does want to extract some value out of those discussions. But as to which companies, well, which economies, which regions, which companies, which sectors, we're going to have to wait and see what he has to say. With that said then, a lot of analysts have said they were hoping that April 2nd, i.e. today, will be a clearing day, a day where we get some kind of clarity. But given what you said, and also given what some other analysts are saying, it sort of indicates that perhaps even after today, there will still be a lot of uncertainty because we don't know what's going to stick and what won't. Well, exactly. So I think uncertainty is a given. So we'll hear today what he has to say, but as I said earlier, I mean, this is the president who has withdrawn certain documents, others have been challenged, and others have kind of gone through and become law. But what we do expect is as he announces, you know, what he expects in return, then clearly those companies or countries or economies will have to take that into account and then respond and come back and say, okay, you know, let's negotiate, we can give up, you know, your A and B in exchange for G and H, for example, and then get a settlement, then hopefully that settlement becomes law. And then we get some level of certainty going forward. But we're not quite there yet. So I think today hopefully takes us a lot closer compared to what we've seen, you know, so far since he's become president. But I think there's still going to be another round where, you know, the other trade partners will have to respond and say, yes, we know we can do this, or actually no. And then also within the US, I think there will be also a lot of lobbying, a lot of court cases where some of these things will have to be challenged, because not only do these certain announcements or tariffs ahead the other trade partners, there is no doubt that a lot of the US companies will also get hit. So those executives are not sitting by, and I don't think they will sit by any further, and just wait and we'll see that companies being obliterated. I think there will be a lot of lobbying, and then hopefully there will be some settlement after with a better clarity going forward. Let's take things back a bit and perhaps go back to, you know, the period leading into US elections, then the time when we had the election results, and then coming into 2025. What have we seen when it comes to US equity performance? So initially, there was a lot of excitement, especially leading up to the elections, especially when the polls started suggesting that, you know, President Trump is a foreigner. And that excitement was on the basis of his policies that we've seen to the pro-growth. I mean, he did run his election on tariffs, you know, America first and all those good things. And the initial view that would be positive for the US economy in the form of, let's say, more growth, more profitability and more employment. And I was so optimistic, especially running on the back of that. And then the tides started to turn a little bit, you know, with the bond market starting to actually underperform, where suddenly there was this concern that actually the full extent of what you had announced then is never to be implemented. There was a risk that that could be inflationary, especially for the US economy. Now, simply put, you know, if you're going to put tariffs on import into the US, in the absence of other alternatives, you know, those companies that import left to pay more. And therefore, that increase in prices instead of tariffs left to be pushed under the consumers and therefore create inflation. So we started to see the bond market in a falter, the equity market still running on the back of, I guess, the increased profitability. And then things started to change around the 20th of January when he became president, where, you know, it became very unpredictable. Some of the stuff that he did was completely unexpected, you know, given his electioneering. And then the markets started to worry that actually there's a much bigger, you know, sort of storm gathering there to the extent that if all of what he's saying actually goes through, not only do we have inflation as a concern, actually, we started to worry about a recession, meaning that, you know, the growth in the US economy, actually, that's probably going to stop. The consumer is likely to actually start to suffer from high interest rates because of inflation, and a combination of high rates and low growth. And so it's been quite poor of a complex. And hence, we started seeing this sudden uptick come through. And just to give you an indication, the peak in February to date, the US market has lost about 5%, but in money terms, about $4 trillion that is evaporated, with a lot of that money going into other markets as well as the US. I was looking at, you know, some of the figures coming through when we look at, you know, drawdown levels, especially on the S&P 500 or the Nasdaq, but actually just looking at the different indices. When you look at those drawdown levels, I mean, do you want to go in at these levels? Or do you still want to wait a little bit and see how things play out, and perhaps maybe sniff around Europe? Yeah, so I think the one thing that is a bit misleading, if you look at a chart of the S&P 500, as I said, it's about down 5% year to date from the peak. It doesn't sound like much, but when you start looking at some of the subsectors, so especially, you know, but we've spent seven of the biggest tech stocks, that's where you see a lot of the damage. That's where a lot of the money has actually flown out, you know, that $4 trillion into other parts of the world. So the rest of the US, interestingly, is not that bad. One, from a gradation point of view, but also it has not been sold off to that extent, because it never really outperformed over the last while. It has largely been the seven stocks or so that have actually driven the US market to its height that we saw earlier on in the year. So one can therefore argue that, you know, yeah, perhaps there's still a bit of value in the US, but you do need to look very, very carefully at where those possible values are. Elsewhere in the world, yes, there is value, but we have not had as much growth as what you've seen in the US. So it becomes a question of between the US and say, let's say Europe or even Asia, who's got the best growth potential still, you know, despite what's happening with the tariffs. And that's the million-dollar debate that the country is having, where it is hard to answer that question convincingly, because you need to know what's going to happen tonight, you know, with the tariffs. You need to know who's going to be hit hard, how they're going to respond, and what's the likely impact on that economy going forward. And until you have that clarity, you know, the very best unseen may actually be very tempting, maybe a false dawn, where there's a bit more risk to come, which is why a lot of the money that left the US is going to sit on the sidelines, it's going to be sitting in cash, because people are not sure, you know, who's going to be the winner or the losers in this tariff war. With just, I suppose, a minute left as we wrap up the conversation, from a sector perspective, where are you overweight and underweight, or perhaps even neutral? I think in South Africa, you know, this is getting a bit tricky, and I was just listening to the budget debate earlier on, we're struggling with the growth story. And whatever excitement we saw earlier on in the year, of course, the GNU, you know, without a tangible growth story, you're going to struggle to find earnings coming through for corporates to justify the rates that we're seeing. So for us, you know, we still like the banks, we think the banks continue to be resilient. We have been in gold and platinum, so very sad as well. And just starting to run ahead of itself, but it still has a lot of momentum, because of this fear factor that is playing, especially in terms of gold. So we like, you know, select industrials, we do like commodities, but very, very selectively, especially gold at this point in time, purely from a central point of view, but pure fundamentals still keep us invested. All right, as we wrap up, and I know I kept saying as we wrap up, but I do understand we've got a few seconds left, so I'm going to squeeze in one last question. What do you think is going to be the equity theme for this quarter? I think the equity theme for local markets globally is still going to be dominant in power, unfortunately. I think for us, you know, we missed a trick here domestically. We could have gone, you know, a different way, and progressed and accelerated on the structure of the firms. But I think that by the debate, that is a portal that we didn't need. And therefore, there is the potential to stall the growth momentum in South Africa. But nevertheless, I think that the growth, the story for equity markets will be driven by what's happening globally, both from a terrorist point of view, but also from how the different countries respond, and what it means for companies, you know, from a sector point of view. Patrick, thank you so much for your time this afternoon. That was Patrick Matidi, who's the head of multi-asset strategies at Aluwani Capital.
Theme: Implications of Trump's reciprocal tariffs on global markets
Global markets are on edge as President Donald Trump prepares to announce reciprocal tariffs and other levies on what he has dubbed as 'Liberation Day'. Business leaders and policymakers are anxiously awaiting the details of the announcement as Trump's team continues to debate the specifics of the reciprocal tariffs. Patrick Mathidi, Head of Multi Asset Strategies at Aluwani Capital, shed some light on the preparation surrounding 'Liberation Day'. The anticipation leading up to the announcement has created a wave of uncertainty and trepidation among investors and market participants. The looming decision from President Trump has left many wondering how the global trade landscape will be reshaped by these new measures. In a recent interview with CNBC Africa, Mathidi discussed the impact of Trump's policies on the markets and shared insights into the potential repercussions of the upcoming announcement. As investors worldwide keep a close eye on the developments, the key theme of the discussion revolved around the implications of the reciprocal tariffs on various sectors and economies.
"The anticipation leading up to the announcement has created a wave of uncertainty and trepidation among investors and market participants."
['Global markets', 'President Donald Trump', 'Reciprocal tariffs', 'Liberation Day', 'Trade policies', 'Market volatility']