DBS Chief Investment Office has released a detailed asset allocation strategy in response to the recent tariff measures announced by the Trump administration. The tariffs, which include a 10% universal levy on imports and targeted reciprocal tariffs up to 50%, are expected to significantly impact global economic growth and corporate earnings if tensions escalate further.
The report suggests that Trump’s tariffs may be ideologically driven, aiming to reset trade relationships and the global order. In light of these developments, DBS recommends several investment strategies across different asset classes.
For equities, DBS suggests favouring markets with potential for fiscal stimulus, such as China and Europe. China, with a central government leverage ratio of 25% of GDP, has room for government-led stimulus. In Europe, Germany’s recent approval of a EUR500bn infrastructure fund could drive growth. Additionally, companies capable of shifting production back to the US, particularly in high-entry-barrier sectors like semiconductors and aerospace, are recommended.
In the bond market, DBS advises sticking with high-quality credit in the A/BBB range and maintaining a duration barbell of 2-3 and 7-10 years. Long-duration Treasury Inflation-Protected Securities (TIPS) are also favoured due to their potential in a low-growth, high-inflation environment.
Gold remains a strong recommendation, with DBS reiterating an overweight position due to its safe-haven appeal amid volatility. The report highlights potential catalysts for gold, including growth risks, monetary easing, and increased physical demand.
For alternatives, DBS suggests global macro and relative value hedge funds, which can navigate elevated volatility and geopolitical risks effectively.
DBS’s strategies aim to help investors navigate the uncertainties posed by the current trade tensions, with a focus on resilience and adaptability in asset allocation.
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