US trade tariffs: “Keep calm and carry on”

US President Trump is known for his surprising decisions, which often have far-reaching consequences. His tariff policy in particular has caused uncertainty on international stock markets and poses considerable challenges for companies, fund managers, and investors. Joachim Hesse heads the Investment Products division at ERGO and provides valuable insights into the complex interrelationships.

Why do the trade tariffs imposed by the US president have any influence on stock market activity at all?

Trade tariffs can increase production costs for companies, especially those that rely on imported materials. Higher costs usually lead to lower profits, which can have a negative impact on share prices. Trade tariffs also create uncertainty on the markets. This is because investors often react sensitively to political decisions that affect trade relations. This uncertainty can lead to sharp price fluctuations.

Tariffs can also increase the prices of imported goods, which can lead to inflationary tendencies. Higher inflation can reduce consumer purchasing power and thus slow economic growth, which in turn can weigh on the stock markets.

Certain sectors, such as export-oriented industries, are more affected by trade tariffs than others. This can lead to a realignment of investor strategies, which usually has an impact on the entire stock market. There are therefore quite complex chains of effects in the internationally interconnected economy.

How strongly does US tariff policy affect the German economy?

As an export-oriented economy, Germany tends to be more affected by trade tariffs. However, foreign trade with the US accounts for only about 10 percent of Germany's total foreign trade. Although this is not insignificant, the direct impact of US tariffs on the German market is relatively limited. As protection against high tariffs, many large German companies have been operating production facilities in the US for years. This also enables them to produce closer to their American customers. The European Union's internal market is more important for German foreign trade. This is where the majority of German exports go.

Are equity investments still worthwhile given the global uncertainties? Are there alternative, safer forms of investment?

In principle, equities are a worthwhile investment in the long term – even in times of crisis and market volatility. Successful companies that are able to adapt will always find a place in the market. Nevertheless, it should be noted that equity investments can be subject to greater fluctuations in the short term. We therefore recommend an investment horizon of at least eight years for equity funds.

There are also alternative forms of investment that tend to be less volatile than equity funds. Bond and mixed funds generally offer more stable returns and are less susceptible to short-term market fluctuations. Ultimately, investors should carefully tailor their investment portfolio to their individual risk preferences and financial goals.

How is the current stock market situation affecting funds?

The current stock market situation undoubtedly has a strong impact on funds. Even actively managed funds cannot completely escape negative market developments. Nevertheless, active fund managers offer a decisive advantage: they have the opportunity to take advantage of market fluctuations in a targeted manner and mitigate them in their portfolios. Thanks to their expertise and in-depth analysis, they can identify potential risks and react accordingly to mitigate the effects of market turbulence.

What characteristics make a fund particularly crisis-resilient?

Investment funds, for example, offer broad diversification. Spreading investments across different asset classes, sectors, and geographical regions can reduce the risk of heavy losses. A well-diversified investment strategy can ensure that the fund remains more resilient in times of crisis. The liquidity offered by many investment funds also plays a role. Investors can usually sell their shares quickly and easily, which can be crucial in times of crisis in order to respond to sudden financial needs.

Which is better: actively managed funds or ETFs?

In the current volatile market environment, actively managed funds offer some important advantages over ETFs, which are generally passive and track market indices. In times of volatile markets, active fund managers can identify and exploit opportunities arising from market movements. They are able to respond quickly to changes by adjusting their investment strategies and investing in sectors or companies that are likely to outperform the market. An additional advantage of active funds is the potential for risk reduction. Active managers can selectively choose investments that are potentially less susceptible to market fluctuations, thereby stabilizing the portfolio to some extent. This is particularly important in uncertain times when investors may be concerned about the performance of their investments. MEAG, for example, has proven through awards from renowned fund rating agencies that it is one of the most successful active fund managers.

To what extent can the current market conditions influence Germans' private pension provision?

It is particularly important to maintain continuous retirement provision in times of uncertainty. Investors who invest disciplinedly in their retirement provision generally have a better chance of offsetting short-term fluctuations over the entire investment period. This is because regular saving and long-term investing are crucial to mitigating the effects of market fluctuations. A well-diversified investment strategy can also help spread risk and increase the stability of retirement savings.

What is the general advice for investors?

In uncertain times, investors are advised to remain calm and keep a cool head. It is important to carefully review your own financial situation and consider it in the context of your personal investment goals. In many cases, it may be advisable to seek the support of an experienced advisor. A professional can offer valuable perspectives and tailor-made strategies that are tailored to the individual needs and goals of the investor. Impulsive or hasty decisions should be avoided, however, as emotional reactions to market movements often lead to poor results.

How will the capital markets develop if the US continues to cause turmoil on the stock markets over the next four years?

The development of the capital markets will be strongly influenced by political and economic decisions in the US over the next four years. Past experience suggests that the US administration will strive to protect its own country and citizens from serious economic damage. In the past, for example, we have seen that a sharp rise in interest rates on US government bonds was considered unacceptable. This led to the relevant measures being withdrawn or suspended. Extreme scenarios are therefore rather unlikely. Nevertheless, uncertainty caused by political unrest and economic tensions will continue to play a role.

Another aspect that should be taken into account is that many US citizens have invested their retirement savings in the capital markets. This will probably mean that the US administration will take particular care to ensure market stability in order to maintain investor confidence and promote broader economic stability in its own country.

Mr. Hesse, thank you very much for the interview.

Interview: Dr. Josef Wild (MEAG) and Anke Bathen (ERGO)