�۶���Ƶ

We are witnessing what we believe to be one of the most historic shifts in US trade policy, fundamentally altering market volatility and asset allocation. Investors are questioning American exceptionalism and the sustainability of US financial asset outperformance, following years of increasing allocations and notable outperformance in the US. The shift in sentiment and related flows are leading to pronounced market movements and redirecting investor focus.

In 2024, we introduced a strategy focusing on emerging markets ex-Asia, driven by their lower correlations to other risk assets, attractive opportunities for fundamental alpha with less investor crowding, multi-year investible themes and good liquidity in several markets. This year, we are beginning to observe broad-based weakness in the USD, and a growing investor interest in regions such as Latin America and Central and Eastern Europe. This is accelerating some of the fundamental relative value crystallization and coming through in performance. We have continued to steadily increase our allocation here.

While the final outcomes on trade agreements are uncertain, in our view, the direction of travel remains clear – manufacturing supply chains need to shift back to the US for companies selling in the US. Companies will have much different starting positions for their supply chains and geographic exposures, as well as different abilities to react over varying timeframes. We expect investors will be focused on this more closely in the coming quarters.

New initiatives in US trade policy have also expanded the toolkit in an effort to redirect global trade and investment flows. Our Commodities team recently highlighted a trade action that may impact how commodities are traded globally. Our team notes that while followers of financial markets over the past decade have likely heard of Section 232, the subsection of the Trade Expansion Act of 1962 that has been used as the legal justification for implementing tariffs on the likes of steel and aluminium, there has also been a lesser-known investigation taking place since early 2024. This investigation, in particular, may have wide-ranging impacts on how commodities are moved around the world.

The team breaks down this investigation and its possible impact on commodity markets. For background, Section 301 of the Trade Act of 1974 provides a statutory means by which the US may impose trade sanctions on foreign countries that violate US trade agreements or burden US commerce. The most recent investigation focuses on China’s dominance in the maritime, logistics, and shipbuilding sectors. In the most extreme case, the recently announced results of the investigation and the proposed penalties to curb China’s dominance could potentially add fees of up to USD 3.5 million for every port call. Despite the fact that increasing fees may subsequently increase consumer prices and reignite COVID-era supply chain frictions, this action still seemingly has bipartisan support (this investigation was initiated under the Biden Administration).¹

One reason for this support is China’s increased influence in the maritime sector. The combination of market share-driven targets for Chinese shipbuilding firms, alongside a network of incentives to utilize Chinese-made inputs, components, and equipment, have effectively “priced out” other global competitors, including the US. As evidence, our team noted that between 2010 and 2023, only eight commercial ships were built within the US by three commercial shipyards.¹ Compare that total to Chinese shipyards, which turned out almost 33 million compensated gross tons (mCGT) worth of seaborne shipping capacity, equivalent to 150 of the world’s largest container ships, in 2023 alone.²

In our team’s view, while there is a low (though non-zero) probability that the most extreme version of the policy prescriptions will be implemented, it is likely that some form of disincentive to utilize ships where China holds a direct or indirect interest will ultimately be enacted. This would likely have the most direct impact on the bulk freight shipping economics of US commodities such as coal, grains and some volume of copper and steel scrap, all of which utilize bulk carriers to varying degrees. This could thin profits, as cost-efficient shipping is an essential contributor to overall margins, given that these materials have high volume-to-value ratios. Thus, increased shipping costs could reduce the availability of these commodities to the global market and subsequently tighten ex-US supply-and-demand balances. These restrictions could also effectively trap US production onshore, causing oversupply conditions and depressing prices received by US commodity producers. Our Commodities team is paying close attention to these dynamics, which may create opportunities from changes in pricing differentials of the same commodity between regions or shifting time spreads due to stranded supply.

¹ U.S. Chamber of Commerce: Opposition to Proposed Action in Section 301 Investigation of China’s Targeting of the Maritime, Logistics, and Shipbuilding Sectors for Dominance. Mar 24, 2025
² UN Trade and Development Data. Apr 8, 2025
��