Schroders Investment: Opportunities are nurtured in volatility, optimistic about industries such as banking, real estate, and consumer services

According to the Zhitong Finance APP, Julien Houdain, the Global Unconstrained Fixed Income Head at Schroders, stated that as volatility increases, credit investment opportunities also rise, and some of these opportunities are beginning to emerge. Currently, Schroders prefers industries that are not directly affected by trade tensions, such as banks with very strong fundamentals. Schroders expects investment banks to earn substantial profits from market volatility. Additionally, real estate directly benefits from low interest rates, as well as the relatively stable service industry.

Julien Houdain pointed out that the scale of tariffs implemented by the United States is more aggressive than the market expected. It is well known that U.S. President Trump tends to flip-flop on policies and uses this as a negotiation tool. Therefore, he is currently skeptical about how long these measures will last. In fact, this is exactly what Trump hinted at, mentioning that if other countries lower trade barriers against U.S. products, tariff rates could be reduced through negotiation.

From a corporate perspective, given the ongoing uncertainty, companies are currently unlikely to commit to significant capital expenditure investments. Supply chains have been hit overnight, but suppliers may need years to find raw materials sourced from the U.S. Meanwhile, most manufacturers may pass on higher production costs to consumers. Consumers are preemptively spending robustly by the end of 2024, but the impact of rising prices on purchasing power may not manifest until late 2025.

From an interest rate perspective, Schroders believes that the Federal Reserve will focus on economic growth factors rather than inflation shocks, especially in light of signs of weakness in the labor market. Historically, the Federal Reserve has been highly attentive to developments in the labor market.

Overall, due to the relatively small scale of U.S. manufacturing and limited possibilities for product substitution, this indicates that companies will pass on some (if not all) of the tariff impacts to consumers.

It is noteworthy that even during periods of capital loss, the higher yields provided by credit can offer some additional protection from a total return perspective. Schroders maintains a positive view on duration but advises against being overly enthusiastic at this stage.

If Europe does not take further retaliatory tariff measures, from a regional perspective, European fixed income duration will provide more reliable long-term investment opportunities, as the impact on economic growth is accompanied by limited inflation effects. Nevertheless, if any signs of weakness appear in the U.S. labor market, the Federal Reserve will have more room to cut rates more aggressively, and Schroders will continue to closely monitor developments. Currently, uncertainty remains, making a flexible approach to portfolio construction particularly important