7 Minutes on Markets - Q1 2025 Market Update

Ben Kumar: Hello! I'm Ben Kumar, Head of Equity Strategy, and I'm with Sam Hannon, Investment Manager.

Sam Hannon: Hello!

Ben: 7 Minutes on Markets, as we sit here at the end of the first quarter of 2025, absolutely flown by and been a quarter of incredible change from where people thought we were at the start of the year to where we are today. There's a lot going on. Where do you want to start, Sam?

Sam: I think the man in the White House is probably the best place to start. It's been an interesting year so far. We've seen a load of noise coming from the White House, and Trump's trade policy has been a core part of that, right? Tariffs aren't just problematic for inflation, but they can be problematic for global trade. So we've started to see that this kind of move to protect the US interest has actually damaged their share prices in their market. So we've started to see this sentiment shift now from US dominance to a bit more of a global approach where you've seen the likes of the UK and Europe start to benefit from people looking elsewhere rather than the US.

Ben: And it's interesting, I think, because when Donald Trump won the election, a lot of the markets, the assets that did well last time he went into the White House, did the same again – so US small cap, the dollar all rose, crypto which wasn't really around last time Donald Trump was in the White House but started bouncing as well, and it's all come back. It's all been given back and I think there's a couple of reasons for that. You're right, I think people are a bit nervous about the US trade situation, but the other point to compare to 2016, when US assets did really well and everything else got slammed basically is, it's a really different situation. Back then, interest rates were low, inflation was low, the eurozone was going through a banking crisis, and China had just had an equity bubble burst. So you didn't have many other places to look, whereas now, Europe – all right, it might not be shooting the lights out, but it's pretty stable. Inflation's under control, rates are a bit lower than in the US, growth's OK, China's doing a government stimulus program that looks like it's the biggest in five or six years. The other opportunities are just a bit more attractive.

Sam: And it's interesting as a result of Trump's actions, some of the bigger nations in Europe – the kind of the sleeping giants of France and Germany – are actually having to move their feet now and make some changes with the way that they run their economies and you've seen it in the last few days, with Germany announcing a load of stimulus to basically remove the shackles of their fiscal policies that had kept them from growing and invested in themselves for such a long time. And really, that influence of Trump has made them actually think “I need to do something now, I need to make myself that next big economy”.

Ben: In many ways, kind of Trump's push to, you know, make America great again is actually helping to re-industrialize Europe. And that's really important. There are lots of little companies that will be affected by tariffs negatively in Europe, but they will be massively boosted by a load of government spending. If you start to build a new factory in a small town in Germany, that will change that town's fortune in a way that probably has not been happening for 30 or 40 years. So, the reasons for optimism in Europe, I think are quite well founded.

Sam: Yeah. And there's an interest in… I know, defence, it can be quite a controversial topic, but if you look at Thales, the French defence business, they have a huge factory in Belfast, which was essentially a dead zone for the company. They didn't invest in the infrastructure. They didn't believe it had a future and it was actually going to close down. But the recent spending… spending noise that’s come from a change in policy in Europe and the UK has meant that actually, that factory is going to have a load of new jobs. So it's given a little bit of a boost to the local community in Belfast.

Ben: Yeah, I think there is a lot of change happening and it can feel really, really scary, particularly because quite a lot of it is done by Twitter or X and via headlines and via kind of fights and screaming and so on. But actually, we're not too worried. When it comes to the US economy, it is really hard to break the US economy. Donald Trump didn't manage it last time. He might… you know that there may be the odd thing that gets a little bit sticky over there, but the US has been doing well for, you know, 20 years. Europe might have its time in the spotlight so we're thinking, aren't we, Sam… when it comes to investing, you don't need to be taking loads of risk. You don't need to be piling into things going “yeah, this is our chance, this is boom time”. But you don't need to be scared either.

Sam: Yeah. And I think it's a case of actually assets doing their job. One thing that we've seen on the year-to-date basis has been fixed income doing its job as the protector. For a long time you've not been paid a nice yield to hold fixed income, it's not necessarily had the protection benefits that it once had that you think back to 2022. But now, in these uncertain times, capital values of bonds have stayed stable.

Ben: Stable. That's all you're looking for.

Sam: And you're actually getting paid a yield to hold them now. So you're getting rewarded. So actually protect your portfolio, which is only a good thing.

Ben: Yeah, I think that's right. So there's a few other interesting opportunities within markets, which is kind of what we're a bit more interested in at this time; not, “oh, we need to take all the risk off the table” or “we need to pile into a certain amount of…” no, no, no. There's just some interesting opportunities in a couple of sectors, so. Shall we talk quickly about financials?

Sam: Yep. So financials is a great area to focus on as it’s had a great year. It's had a great few years, but it's still below those levels it was trading at back in 2008 or global financial crisis, but what we've seen in recent years is this real change in sentiment where, for a long time, these businesses were seen as uninvestable. They had bad reputations off the back of the financial crisis, but now they've shored up their balance sheets, they're actually really well run businesses and they're only going to benefit from a change in this economic policy that we're seeing globally.

Ben: Yeah, and financials are interesting because it's not just banks, although they are a really big part of it, but it's stuff that I think we'd all agree is pretty important and pretty useful and growing, which is like Visa and MasterCard, it's insurance, it's companies like Berkshire Hathaway, which own a lot of other businesses. So financials are really interesting. And then I know your favourite one, Sam. Communication services, which shouldn't really be called that, right?

Sam: No. In the good old days it would have been your typical telecoms businesses like your Vodafones or things like that, and it still contains some of those businesses, but it’s mostly the entertainment sector and it’s connecting people with information or media. So we see a couple of big positions of personal favourites, of Walt Disney – so it's not just the theme parks that everyone knows and loves, but it's the content. It's the Disney plus, the studios. It's a really well run, diversified business. But then you've also got Comcast, which is a little bit closer to home because they don't just own Universal Studios and other theme park, but they also own Sky TV. So it's just got the ability to have a diverse revenue stream from different areas of their business, but then grow as people start to spend more and consume entertainment. Ben: And I think that the interesting thing about them is they will be beneficiaries from technological development. So there is a battle going on in AI, but companies like Netflix or Disney, they will use it to make their content better and smarter. So they are waiting for whatever the developments are in technology and they'll try and use them as cheaply as possible. So we really like communication services, really like financials, and there's positions in our in our tactical portfolios in both of those. And we're excited to see how they do in the second quarter and beyond. I think we'll leave it there. Thank you very much for listening, and we'll be back soon.

Sam: Thanks guys.