Trump sparks market meltdown

As US stocks lost more than $US3 trillion ($4.8 trillion) on Thursday, their largest decline since the onset of Covid, and Australian and other world markets melted down, investors eyed their shrinking portfolios in alarm. Almost $57bn was wiped from the S&P/ASX 200 on Friday. The sharemarket closed 2.4 per cent lower at 7667.8 points and is down more than 10 per cent from its February peak. Nearly all sectors finished in the red.

Aside from adjusting the mix of their superannuation nest eggs between aggressive and conservative investment options, if they judge that is best, policyholders have limited options. But superannuation is a long-term investment and fund managers are used to volatility. Sharemarkets have been trading at record highs, with prices hard to justify on the basis of earnings.

Some investors, while tempted to sell shares before the fallout from Donald Trump’s tariff war worsens, as it could in coming weeks or months, are entitled to be sceptical about the President’s prediction: “The markets are going to boom.” One day. Experienced investors who remember the global financial crisis and other bear markets will want to hold their nerve and take the long view. They also will have an eye out for bargains in companies with strong balance sheets and good prospects. Fluctuations are part of trading. When the potential for economic damage because of Covid was becoming clear five years ago, Commonwealth Bank shares were trading at $57.66. On Friday they were $154, down from $166.72 in mid-February.

Beef producers are deeply worried, understandably. And as Woodside Energy chief executive Meg O’Neill told The Australian, Washington’s global tariff gambit would “ripple” through world trade and inflate costs, slowing activity. The impact of the tariffs on other industries will depend largely on what comes next by way of retaliation from other nations, especially China. There is a distinct risk that Southeast Asian nations, hit hard by the tariffs, could gravitate economically towards China, strengthening its regional position.

It also remains to be seen how long the tariff reprieve given to pharmaceutical imports to the US – a significant export for Australia – lasts. Mr Trump has identified pharmaceuticals as one of his next targets for tariffs, Joe Kelly writes from Washington, which could affect some of Australia’s biggest healthcare companies such as global blood plasma giant CSL, surgical gloves supplier Ansell and the makers of the Cochlear bionic ear implant.

Markets run on a mixture of fear and greed, and it will take time before they digest how the changes to tariffs will play out for different countries and companies. It remains to be seen how long that uncertainty persists. The possibility of recession will send some investors to the safety of government bonds and cash. The upside for borrowers and property investors is that a major economic downturn, painful as it would be for jobs and income, including government revenue, is likely to lead to a fall in interest rates. Investors can only weigh up the conditions and risks, and tread carefully. And as Australian Industry Group chief executive Innes Willox said, it is time to get the nation’s policy house in order on tax, deregulation and energy: “We cannot hope to thrive in a trade war with policy settings that are internationally uncompetitive, overly complicated and not fit for purpose.”