🧨 The Core Dilemma
We face a classic challenge:
“If we reduce our exposure to risk assets now, and trade tensions resolve, we risk under-performance. But if we remain fully invested and the conflict escalates, we may suffer meaningful short-term draw-downs.”
This dilemma requires a thoughtful, flexible strategy—one that minimises regret and maximises our ability to adapt as the situation evolves.
🔍 Historical Analogues
Trade wars and policy shocks are not new. History offers valuable perspective:
- 2018–2019 U.S.–China Trade War: Triggered short-term volatility and sector-specific selloffs, but markets rebounded sharply after even partial negotiation progress.
- Brexit Referendum (2016): Markets plunged in the aftermath, but recovered within weeks.
- COVID-19 (2020): A shock-induced drawdown of over 30% reversed dramatically within months.
These cases remind us: markets often overreact in the short term and recover suddenly as narratives shift or resolutions emerge.
💬 Our Message to You
We are not in the business of prediction. We are in the business of preparation.
That means:
- Remaining exposed to long-term sources of return, so you are not left behind in the event of a recovery.
- Building resilience through risk management, strategic hedging, and careful allocation.
- Positioning flexibly, with cash, options, and global diversification to respond dynamically.
“We’re diversifying your capital, but staying ready to participate in the recovery when it comes.”
📊 Macro Scenario Matrix: Trump Tariffs and Global Trade War (April 2025)
| Scenario | Description | Est. Probability | Market Reaction | Our Strategy |
|---|---|---|---|---|
| 1. Prolonged Tariff Escalation | Tariffs persist or escalate (esp. China 104%, Vietnam 46%) | 35% | Equities ↓, EM ↓, VIX ↑, Bonds ↑ | Maintain core exposure, hedge downside (volatility, gold, defensives), modest cash buffer |
| 2. Partial De-escalation / Side Deals | Bilateral exemptions or delays (e.g., Europe, Vietnam) | 30% | Markets stabilize/slightly rebound | Re-enter selected oversold assets (EMs, cyclicals), hold hedges selectively |
| 3. Full Detente / Negotiated Framework | Global resolution, tariff rollback | 20% | Equities ↑↑, EM ↑↑, USD ↓ | Add beta exposure (EM, cyclicals), reduce hedges, rotate to value/reflation themes |
| 4. Political Reversal in U.S. | Domestic pressure forces Trump to backtrack | 15% | U.S. equities ↑↑, credit tightens | Increase U.S. growth exposure, unwind defensive tilts |
🌤️ Reasons for Optimism
While headlines may feel chaotic, there are important reasons to stay constructive:
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🛒 Wall Street is running a sale. Recent price declines have pushed many quality stocks into 15–20% discount territory. We believe this offers long-term investors an attractive entry point.
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🧱 The U.S. economy and corporations remain fundamentally sound. Earnings, productivity, and innovation remain robust. Tariffs may affect margins in the short run, but they don’t alter the long-term value of resilient businesses.
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🌍 America remains the world’s most dynamic economic engine. Over the past 40 years, the U.S. has consistently outperformed other developed markets—
🔎 Further Reading & References
Multiple credible news sources have recently reported on efforts by global leaders to negotiate directly with President Trump in an attempt to mitigate the trade war escalation. These diplomatic maneuvers—similar to what occurred during the 2018–2019 U.S.–China trade conflict—are the sort of events that can portend a sudden market recovery if they bear fruit:
- 📰 The New York Times: Global Leaders Rush to Woo Trump, Hoping to Sway Him
- 📰 The Wall Street Journal: Europe’s Leaders Are Crafting a New Strategy for Trump
- 📰 Financial Times: World Leaders Turn to Flattery and Golf to Win Trump Over
- 📰 The Guardian: Playing Political Footsie with Trump Won’t Cut It
These reports reinforce our thesis: diplomacy is active, and resolution remains a live and credible path, despite short-term volatility.
⏳ The Path Forward
No one knows exactly how or when this trade conflict will resolve. What we do know is that remaining adaptable, diversified, and disciplined gives you the best chance of long-term success.
Thank you for your continued trust. — Sunstrike Capital (Pty) Ltd
