Reflecting on the fallout from 2 April, dubbed Liberation Day, when President Donald Trump announced sweeping tariffs on US imports, Pearce noted the initial shock sent markets tumbling before a sharp rebound on signs of tariff rollbacks.
“Since Liberation Day, we pretty much have a backtracking of Trump’s original position,” he said. “Most importantly, Trump recently announced a reduction in tariffs on China from 145 per cent to 30 per cent. This is only a 90-day truce, and within that period, it’s hoped that both countries can negotiate an acceptable outcome.”
Pearce traced the root cause to China’s rapid ascent as a global economic power, challenging US trade dominance and prompting Washington’s aggressive tariff strategy.
“Trump’s America doesn’t like this,” Pearce said. “Trump holds China accountable for hollowing out America’s industrial and manufacturing base. Trump also accuses China of gaming the trading system and hence leaving America with its big, fat, trade deficit. That’s pretty much what brings us to Liberation Day, or a big part of it anyway.”
The abrupt tariff rollback exposed the limits of Trump’s trade gambit, Pearce added, citing China’s swift retaliation and an unusual sell-off in US bonds as market signals rejecting escalating conflict.
The market upswing since has seen UniSuper’s option portfolios flat to modestly positive year-to-date – results Pearce described as “solid” given the strong returns of recent years.
“In terms of our option performance, I’m loath to put any numbers on the screen because as soon as I put them on the screen, they’re out of date these days. But what I will say is that calendar year to date, pretty much all of our options are close to flat or in positive territory.
“Given that we’re coming off two very strong years, I think that’s not a bad result, but we have got a fair way to go in this year yet,” he said.
Despite equities rebounding above pre-tariff levels, Pearce warned no substantive deal has been secured, and residual tariffs could linger at historic highs.
“We remain in this period of suspended animation. More importantly, when a deal is finally negotiated between China and the US, I suspect that the US is still going to have a level of tariffs that we haven’t seen for about a century.
“We might avoid a global recession. We might avoid the worst-case outcomes. The fact of the matter is that we’ve got sand thrown into the wheels of the global economy, so I expect that things will have to slow.”
On returns, Pearce maintained a cautious base case: “My base case is that we are going to muddle through.
“In February, I made the point that we have had two really strong years, anything above a flat return would be a bonus, and it’s pretty much my thinking still.”
He also warned against knee-jerk reactions by investors.
“At the height of the chaos, we saw elevated member switching, which we typically do see,” he said. “They do this at precisely the wrong time because they tend to miss out on the upswings and the recoveries in the market.”
“The lesson being, usually the worst time to sell is when the markets are gripped with fear.”
Domestically, Pearce said Australia is well positioned, with the Reserve Bank likely to cut rates and a government with a strong mandate prepared to spend.
Noting that he once believed in “American corporate exceptionalism”, Pearce said at the time that Trump “is turning out to be horrible for business”.
“The biggest threat to American corporate exceptionalism is indeed Donald Trump,” he said.
“Like every other fund, we are questioning our exposure to the US. It would be fair to say that we’ve hit peak exposure and will be reducing over time.”
New data reinforces solid April for funds
Data from Chant West reinforced on Friday that super funds finished April in positive territory despite “Liberation Day”-driven market turmoil.
The median super fund – those holding 61–80 per cent in growth assets – rose 0.6 per cent last month despite market volatility from President Trump’s tariff announcements.
The positive April result brought the return for the first 10 months of FY2024–25 to 5.8 per cent.
Commenting on the data, senior investment research manager Mano Mohankumar said that while markets shook violently on the back of Trump’s initial reciprocal tariff announcements, over the full month of April, developed international shares were only down 1.8 per cent, while Australian shares gained 3.6 per cent.
“The higher-than and broader-than expected tariff announcements made by Trump early in the month sparked extreme market volatility, with Australian shares and hedged international shares down 6.5 per cent and 10.2 per cent, respectively, over the first week of April,” Mohankumar said.
“However, his subsequent pause on tariffs on most countries resulted in a strong market rally, which has continued into May so far.”
Chant West data put the all-growth super option up 0.4 per cent on the month in April, while the high growth added 0.5 per cent.
“If you panicked in early April and switched to a lower risk option or cash, not only would you have crystallised your losses, you would have also missed out on the market rebound,” the research manager said.
“That’s why we remind members that super is a long-term investment and encourage them to see a financial adviser if they’re thinking of switching options.”
Earlier this month, SuperRatings similarly said the median balanced super option returned 0.6 per cent for the month following a strong response from markets to Trump’s pause on tariffs.
