SINGAPORE: The Greenland-tariff-threat-that-wasn’t exemplifies the challenge now facing global investors – how to build portfolios resilient enough to withstand US President Donald Trump’s constant policy turbulence.
Asian markets tracked gains on Wall Street on Thursday (Jan 22) after Mr Trump walked back his threat to impose new tariffs on European allies, including Germany, France and Denmark, who had pushed back against his grab for Greenland.
But analysts say such episodes are becoming more frequent, requiring investors to rethink their approach to portfolio management.
“The latest rebound is largely a relief rally,” said Mr James Ooi, a market strategist at Tiger Brokers. “The prior sell-off was driven by Trump’s tariff threats toward European allies, and the rebound reflects the market unwinding fears linked to the Greenland episode.”
However, Mr Ooi believes markets may be too optimistic about the trajectory ahead.
“Markets appear to be underpricing tariff risk, despite the likelihood of recurring tariff threats,” he said, adding that investors should be prepared for elevated volatility.
Mr Jude Lin, deputy CEO of Wrise Private Singapore, holds a similar view. “There is a growing risk that tariffs are currently underpriced, especially given the broadly optimistic market tone,” he said.
The quick recovery this week shows that investors have grown accustomed to letting policy shocks fade away. “While this behaviour has worked so far, it does leave markets vulnerable should policy actions become more sustained or less reversible,” Mr Lin said.
Analysts said geopolitical risks are likely to remain elevated this year, leading to continued market volatility.
Trump’s unpredictability has “not yet become a fully known or discounted risk”, said Mr Ooi.
IS TRUMP’S BARK WORSE THAN HIS BITE?
The assumption that the US president usually backs down from his threats emerged last year, with an increasing number of investors betting that his rhetoric is harsher than his actual policies.
“(This is) why market pullbacks have become shallower and relief rallies quicker than expected,” said Mr Ooi.
But he cautioned against assuming that the so-called “Trump Always Chickens Out (TACO)” pattern will emerge. “Over-reliance on this belief could hurt investors if Trump unexpectedly follows through on his threats.”
Mr Ooi suggested it would be more prudent to hold back when outcomes remain uncertain, and invest when the dust has settled.