What has happened?
The trade tariffs announced by the Trump Administration were clearly worse than expected, with the seeming haphazard approach to how these have been set also creating uncertainty. The follow up announcement from China of reciprocal tariffs further enhanced market fears of a global economic slowdown and resulted in wholesale selling, with commodities and mining and energy stocks coming in for particularly harsh treatment. Key economic activity exposed commodities like copper and oil were down over 10%. Core large cap copper holdings in the portfolio such as Anglo American, Freeport McMoran, Teck, Glencore, and Capstone are all down more than 20% from their March highs and in some instances more than 30%.
The selling across the market over the last two days has drawn parallels with the capitulation and panic last seen during the Global Financial Crisis of 2008, and the depths of the Covid-19 sell off in 2020. Friday saw the highest volumes on record, along with breadth of selling across all sectors only seen in the GFC. Even recent winners such as gold came under pressure on Friday, indicating forced selling. This slump has seen the market very quickly move to price in a global economic recession with the resources sector particularly hard hit, given its sensitivity to global growth.
Why are we saying all of this? Because the market collapses of 2008 and 2020 were, respectively, driven by structural financial system risk and a sudden and complete shutdown of the global economy. We have neither of those backdrops today, and yet markets are reacting as if we are.
Portfolio Manager, Ben Cleary, discusses Tribeca TGF’s positioning on tarrifs and the portfolio is positioned in high quality companies that we expect, given their history, will bounce hard as and when the positive catalysts of trade deals and/or policy stimulus are announced. The old adage that it is darkest before dawn seems particularly apt right now. Yes, it feels especially dark out there, and the geo-political landscape is likely to remain unpredictable at best, but we suspect deals will get done and the current price action will not last.
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