Dear investors,

What an upheaval! Donald Trump, re-elected on promises of stronger growth, lower inflation through investment inducements, reduced regulation and the paring back of public spending, is now declaring an all-out trade war. If the proposed increases in customs duties were to be implemented, the US economy could slide into recession. The tariffs would represent a levy of almost 2% on the disposable income of American consumers while inflation could reach 5%.

These sudden and successive volte-faces have obviously upended all markets. Beyond the legitimate hedges put in place in response to the renewed uncertainties, we believe it is essential to adjust our investment strategy to reflect the new geopolitical and economic order.

Since the end of World War I, the United States has acted as the guarantor of Western security and values. By seemingly handing victory over Ukraine to Mr. Putin, what credit does Washington retain with Europe, Japan or Taiwan? Of course, it could be contended that American allies contributed insufficiently to the cost of their own defence, but equally, couldn’t one argue they have been already doing so by acquiring primarily weapons made in the United States and generously financing US debt. These purchases of government bonds and equities have enabled the United States to live beyond their means in recent years, with a growing trade deficit being financed at a lower cost by international investors. Launching a tariff war will certainly reduce the US trade deficit, but at the cost of substantially higher prices for consumers and an increased public deficit induced by weakened growth.

Such an absurd policy is unsustainable. Inevitably, common sense - much emphasised by Mr. Trump during his election campaign – will prevail. But when? At what level will markets and falling activity be enough of a deterrent to bring a meaningful policy adjustment? Until then, caution is called for, especially as dollar weakening seems hardly avoidable. We continue to favour technology stocks focused on artificial intelligence, but have reduced our overall US exposure, anticipating an inevitable outflow of capital from the US, whose market capitalisation accounted for almost 70% of the global stock markets’ value at the beginning of the year.

Naturally, mistrust towards the world's largest market has far-reaching consequences for the rest of the world. Yet some promising opportunities are emerging. The anticipated announcement that the United States will withdraw its support for European defence is pressuring us to take back control of our own destiny. Germany will resume its role as the propeller of European growth as it prepares to raise its public deficit to 4/5%, compared with an average of 1.5 % of gross domestic product over the last 75 years. Admittedly, this renewed investment will be spread over the next three years, but it will benefit its European partners with much less budgetary leeway. They will obtain a privileged access (without tariffs!) to the largest economy in the Union, whose growth rate will rise from the stagnation recorded over the last two years to close to 2%.

Beyond our shores, the outlook of emerging markets becomes more attractive, buoyed by our expectation of a weaker dollar and lower real interest rates brought by a slower US growth. We favour Latin America, which has been largely spared the threat of US tariffs, and whose glaring asset undervaluation should be corrected by the ‘Javier Milei surge’. His success is gradually shifting the countries in the region towards a form of governance that is more conducive to growth. Among the most promising economies, India is worth a special mention. With a stable government favouring private investment, India is positioned to continue growing at a rate close to 6%, encouraging the emergence of quality companies led by gifted entrepreneurs. Finally, we cannot forget China, the big winner of the US retrenchment, which is notably bringing unprecedented stimulus to its technology companies.

While the decay of the American empire is undoubtedly a cause for concern and will surely bring about a bumpy road, the advent of a new world order will generate many attractive opportunities for us to seize.

On this comforting note, let me extend you my warmest regards,