Economic and Commercial Impacts of US Tariffs Highlighted
Manulife Investment Management, the global wealth and asset management division of Manulife Financial Corp., has emphasized the economic and investment implications of the recent market volatility triggered by US President Donald Trump’s reciprocal tariffs. According to a new research note, the market disruptions present significant opportunities for fundamental investors to identify high-quality companies at more attractive valuations.
The insurer said that while the initial reaction to the tariff announcement saw a sharp drop in equities—culminating in a 4 percent loss on the Philippine Stock Exchange on Monday—markets have since regained much of that ground. The benchmark index surged back on Tuesday, closing 183.49 points higher, highlighting the market’s volatility and swift recoveries amid fiscal policy developments.
Manulife explained that the rise in equity correlations, where stocks tend to move similarly due to policy shifts, is increasing the value of asset class diversification, particularly with bonds. “As equity correlations spike, asset class diversification from stocks and bonds likely increases,” the firm said. The bond market is seen as a critical diversifier in this environment, with expectations that it will continue to play this role amid heightened uncertainty.
In addition to the equity market’s reaction, Manulife’s analysts said that the US bond market is pricing in multiple interest rate cuts from the US Federal Reserve throughout 2025. With a “stagflationary” macroeconomic backdrop, the firm anticipates that high-quality bonds could offer attractive income opportunities and deliver favorable risk-adjusted returns, especially if further rate cuts materialize.
The research also delves into the broader economic effects of tariffs. While inflation in the US may rise due to tariff-induced price hikes, Manulife foresees a moderation in housing prices and stable energy prices, which should help contain overall inflation. As housing has a large weighting in the US Consumer Price Index (CPI), this moderation is significant in managing inflationary pressures.
Manulife’s global chief economist, Alex Grassino, expressed concern over the broader implications of expanding tariffs, particularly for countries like the Philippines, which faces a 17 percent tariff rate. He warned that delays in negotiations with the US could prolong market uncertainty and potentially harm economic growth in affected countries.
Grassino further highlighted the unprecedented nature of the tariff escalation, which is likely to negatively affect short-term growth and push inflation higher. With the US Federal Reserve caught between rising inflation pressures and the need to support economic growth, Manulife anticipates that the Fed will ultimately prioritize growth, leading to a more dovish monetary policy and potentially even more rate cuts.
Overall, Manulife Investment Management’s assessment suggests that while short-term volatility may hurt some sectors, there are compelling opportunities for investors who remain focused on high-quality US stocks and bonds as part of a diversified strategy.
