Equity Investors Buy Stock Dips Despite Decrease in Bond Fund Inflows due to Trump Tariffs
US Tariffs Rattle Stock Markets, Causing Divergent Investor Responses
President Donald Trump's imposition of new trade tariffs in April 2025 cast a shadow over stock markets, with investors showing mixed reactions.
Trump's tariff announcements last month have been a source of uncertainty, affecting the stock market's performance. The latest tariffs targeted various goods imported from the UK, with a 10% baseline tariff, 25% for passenger vehicles, and 25% for steel, aluminum, and derivatives.
UK authorities, in response, suspended tariffs on a range of imports until July 2027, worth approximately £17 million per year. Furthermore, UK Export Finance was granted an additional £20 billion in business finance to help companies cope with the tariff implications and economic instability.
Despite the UK government's efforts, investors have remained cautious due to the potential economic impact of the tariffs. However, some savvy investors have seen this as a buying opportunity, taking advantage of lower prices in the hopes of a market recovery.
Data from the Fund Flow Index reveals that UK investors withdrew capital from bond funds at the fastest rate since the onset of the pandemic in April 2020. Meanwhile, money market funds saw inflows of £589 million during April, marking the fifth best month on record. The past three months have witnessed the strongest inflows to money market funds compared to any other three-month period, according to Calastone.
Fixed income funds saw a net £1.24 billion withdrawn in April, representing the second consecutive month of strong selling and the highest rate since the pandemic. However, this outflow was still far below the £3.37 billion taken out in April 2020 as global lockdowns were imposed.
Stock markets had dropped off the back of the US tariff announcements but many experts suggest this presents a buying opportunity for top investment funds while prices are lower for long-term investors. In April, investors added a net £1.52 billion to their equity fund holdings, marking the fourth consecutive month of improvement. The biggest beneficiaries were funds investing in North America, with a particular focus on index-tracking funds.
Global funds, heavily weighted towards US equities, also saw strong inflows, totalling a net £1.48 billion. Conversely, emerging market and Asia-Pacific equity funds experienced outflows of £591 million and £534 million, respectively, marking the worst month on Calastone's record for emerging markets. European equity funds saw net selling of £145 million.
UK-focused equity funds also saw further net selling in April, but at £521 million, it was the 'least bad' since July 2024. Edward Glyn, head of global markets at Calastone, suggests that the interest in US equities during April may be a 'buy the dip' tactic, with investors expecting market recovery. The slowdown in outflows from UK-focused funds reflects the relative outperformance of the UK market year-to-date.
Investors seem to be drawing down their emerging market and Asia fund holdings due to concerns over economic growth, given China's singling out for Trump's harshest tariffs. However, it is essential to note that the data provided covers April 2025, and the market dynamics may have shifted by May due to further agreements and tariff relief announcements.
[Source: Calastone Fund Flow Index]
- Amidst uncertainty generated by President Donald Trump's tariffs, personal finance experts suggest this could be a prime investing opportunity for long-term investors, as stock markets drop.
- The UK government responded to Trump's tariffs by suspending tariffs on imports until July 2027 and allocating an additional £20 billion in business finance to help companies cope.
- Despite this, UK investors remain cautious and have been withdrawing capital from bond funds at an alarming rate, with fixed income funds seeing a net £1.24 billion withdrawn in April.
- The latest tariff announcements targeted various goods imported from the UK, including a 10% baseline tariff, 25% for passenger vehicles, and 25% for steel, aluminum, and their derivatives.
- In contrast to bond funds, money market funds have seen inflows of £589 million during April, marking the fifth best month on record, a trend attributed to economic instability.
- The newsletter for general news, crime and justice, and personal-finance might discuss the impact of tariffs on businesses and how investors are navigating the landscape, offering insights for finance enthusiasts.
