Julian McManus: These policy moves are highly unusual. The level of tariffs themselves go beyond the high end of what anyone expected, and so, the questions in a lot of people’s minds are, how long? How permanent these tariffs are going to turn out to be? And what the reaction function of other countries is going to be. Do they try and de-escalate, or do they respond, and do we see an escalation from here?

It’s something that markets are really grappling with, both in terms of understanding the intensity and the duration of what we’re seeing. And also trying to figure out where companies can mitigate the effects, and whether companies are going to absorb the impact themselves or to what extent they’re going to pass those price increases on to consumers. So, you should expect to see higher volatility for a while.

So, the important thing that investors need to focus on right now is, first of all, not panicking. But they need to have, you know, a reasonable asset allocation, and they need to be focused on resilience, and one way to think about it is pricing power. So, if a company has pricing power…let’s use the example of TSMC, Taiwan Semiconductor, for example. If you’re Nvidia or if you’re Apple, there really is nowhere else to go for a foundry to make your next-generation cutting-edge chips to go in your iPhone or in your GPUs and your data centres for AI. You really only can go to TSMC. Only they can manufacture at the volume and at the price and at the yields that you need. When the tariffs were announced last night, semiconductors were carved out, and I think it’s really a nod to the very strong market position and pricing power that a company like Taiwan Semi enjoys. So, that’s just one example, but there are many where companies will actually be able to pass on the tariff increases through prices to the end customer rather than have to absorb it themselves.

I think some of the opportunities that we’re seeing now emerge as babies-being-thrown-out-with-bath water. European equities, for example: We’ve been positive for a long time on banks in Europe, mainly because of the qualitative improvements that have been made. In a new world with tariffs at the margin [being] inflationary, that’s likely to mean higher interest rates. That’s good for European banks. The same can be said for Japanese banks, which are also highly interest rate sensitive.

But in addition to that, at a higher level, it’s likely that you’ll see the reaction function from policy makers and governments outside the U.S. become a lot more aggressive around stimulating their own economies. So, in the case of Europe, Germany has just removed the debt brake, which was a fiscal constraint, so that they can spend more on their military and their infrastructure. That’s going to be highly expansionary. And also in China, China’s now decided to recapitalize its banking system and put a floor under the property market, having deflated the bubble there, and now you’re going to see a new level of stimulus for the economy in China. So, there’s actually a lot of opportunity in response to this.

I do think it’s helpful to distinguish between the short term and the long term. I do think in the short term, this is negative for the U.S. economy, both in terms of dialing up the risk of inflation and dialing down growth at the margin. That said, I do see a lot of reasons to be positive on the U.S. longer term because these tariffs will, at the margin, drive investment into the U.S. It’s hard to say it’s going to happen right away because I think a lot of business leaders are, right now, a little unsettled and off balance and likely to hit pause on investment decisions. But, for example, automakers like Toyota have been planning to build battery factories here for their future product pipeline for a long time, and so, it’s only likely that they’re going to accelerate those plans to build plants here in the U.S. So, I think the U.S. has that going for it, longer term. I think you’re likely to see more of that kind of investment in the U.S., but we shouldn’t expect to see, you know, sneakers and furniture manufacturing jobs coming back to the U.S. anytime soon.

To bring it back to “U.S. exceptionalism,” I think that was a phrase that was probably misguided. It was an apologist term for, to help explain why the U.S. market should keep defying gravity and keep seeing expanding multiples, while international did the opposite. That got so stretched it was unsustainable. But it was driven, in large part, by passive flows and momentum-following investors who just exacerbated that trend. And now it’s unwinding in spectacular fashion. Some people have started using the term “European exceptionalism.” I think that’s probably a mistake, as well. I think you just have to be fundamental and actually take a hard look at the valuations and see where the value is relative to free-cash-flow growth, and that’s what we’re always looking for.