By Jan Faure
February was a volatile month with trade war fears and geopolitical concerns unsettling markets. Weaker than expected US economic data, particularly business and consumer sentiment data, raised concerns about a slowing US economy, prompting investors to seek safer assets. The S&P 500 declined 1.4% for the month while the tech-heavy Nasdaq Composite index fell 4% as investors rotated out of tech stocks and into more defensive sectors such as consumer staples.
US treasuries outperformed US stocks as economic uncertainty and trade risks drove investors towards safe-haven assets. The Bloomberg Global Aggregate Bond index, a barometer for global investment-grade bonds, gained 1.4% for the month.
In Europe, the Euro Stoxx 50 index gained 3.3%, extending the region’s outperformance against US stocks year-to-date. Optimism over an end to the Russia-Ukraine conflict supported risk sentiment as well as positive earnings results from European companies. Minutes from the European Central Banks’s latest meeting confirmed that monetary policy remains restrictive, with policymakers split between concerns over sticky inflation and sluggish economic growth. However, consensus remains that disinflation is on largely track, supporting expectations for further interest rate cuts this year.
Chinese equities gained on optimism surrounding pro-growth policies to support an economic recovery in China. This includes measures to revitalise equity markets, improve the regulatory environment and boost foreign capital inflows. Despite the renewed optimism, investor sentiment was dampened after President Trump imposed an additional 10% tariff on Chinese imports, effectively doubling US tariffs on Chinese imports to 20%.
Hong Kong stocks powered ahead in February with a gain of 13.4% for the Hang Seng index, reaching a three-year high. The gains were driven by Chinese mainland investors buying mostly technology stocks inspired by DeepSeek (AI) and signals that Beijing may ease regulatory pressure on the technology sector.
Japan’s Nikkei 225 index declined 6.1% for the month as concerns over US President Trump’s escalating tariff threats weighed on market sentiment. Adding to downward pressure on was a 3% strengthening of the yen against the dollar on expectations that the Bank of Japan will raise interest rates again soon. This as headline inflation (CPI) increased 4.0% YoY in January from 3.6% the prior month. Economic data, including retail sales, GDP and PMI data, have pointed to a strengthening Japanese economy.
March kicked off with increased tariffs on goods imported from China (20%), while 25% levies against Canada and Mexico were triggered on the 4th March. Looking ahead, all eyes will be on what retaliatory
measures will be announced to counter the US. Ultimately, tariffs will likely increase inflation while, at the same time, a trade war is likely to be negative for global growth. The strong performance from European and Asian equities year-to-date highlights the importance of regional diversification, while the positive returns from fixed income demonstrates the non-correlated diversification that bonds can bring to a multi-asset portfolio. We expect heightened volatility to continue as markets navigate the impact of trade tariffs, however it does create investment opportunities for astute investors.
Table 1: Global Indicators – Local reporting currencies
