Whakarāpopototanga mākete / Market Commentary
Market Volatility – April 2025 – What has happened?
Global sharemarkets, including New Zealand’s, have faced significant turmoil recently following U.S. President Trump’s global tariffs on imports. The tariffs, ranging from 10% to over 50%, have sparked fears of a global trade war and economic recession, leading to sharp selloffs across major indices. Over the course of a single day in the U.S., the Dow Jones and Nasdaq fell by over 5%, while New Zealand’s NZX50 dropped more than 3%, its worst session since the pandemic, wiping out $2 billion in market value. Export-driven sectors have been hit hardest, and the New Zealand dollar has weakened against the U.S. dollar. Economists warn these tariffs could slow global growth, disrupt trade, and increase volatility in markets worldwide.
What does this mean for me and my investments?
The market reaction has been negative across the board. Many investments such as your KiwiSaver account and your Whai Rawa account may have dropped in value over the past couple of weeks. But remember that market corrections are normal and over the longer-term, markets tend to recover.
The Financial Markets Authority (FMA) comment that investments work in timeframes of decades, up to 40 or 50 years. For these long-term periods, a fund with a higher allocation to growth assets is usually the best option. These funds have more volatile assets in them, such as shares and property. So, when world markets are unpredictable, they will be the ones that move around more. The upside is, over the longer-term these funds are expected to provide higher returns, growing your money more.
What does Mercer NZ our Investment Manager say?
While our expectations ahead of these announcements was for substantial tariffs to be introduced, these country-by-country tariffs are larger than many—including ourselves—expected.
The tariffs act as a big fiscal tightening with the collected revenues leading to an improvement in the US fiscal deficit. There is considerable uncertainty as to how long these tariffs will last, how much of them will be negotiated and substantially lowered/eliminated. Our initial assessment is that should these tariffs get implemented as planned and absent a notable fiscal stimulus—which seems unlikely in the near term—we are of the view that they will cause a US recession in the near term.
However, it is worth noting that given these tariffs were higher than most people expected, there is room for positive surprises if they are negotiated away. Notwithstanding, the complex interplay of second order effects from these policies.
In summary, at the time of writing, latest developments have skewed global growth risks to the downside and inflation risks to the upside. Against such a backdrop we believe there is likely to be further volatility ahead.
