Economic and Market Overview
In the first quarter of 2025, global financial markets experienced significant volatility driven by a confluence of macroeconomic factors, escalating tariffs, and geopolitical tensions. The re-inauguration of President Donald Trump on January 20 marked the resurgence of aggressive trade policies, including the imposition of 25% tariffs on imports from Mexico and Canada effective March 4, and a subsequent increase of tariffs on Chinese goods to 20% on the same date. These protectionist measures prompted retaliatory tariffs from affected nations, exacerbating fears of a global trade war and contributing to market instability. Additionally, the announcement of further tariffs on steel, aluminium, and automobiles intensified concerns over supply chain disruptions and inflationary pressures. Collectively, these developments led to significant declines in major stock indices and heightened investor anxiety, underscoring the profound impact of policy decisions on economic performance during this period.
In the first quarter of 2025, major economies exhibited varied macroeconomic performances influenced by factors such as trade policies, inflationary pressures, and geopolitical tensions. The US economy faced significant challenges due to the implementation of broad tariffs by President Donald Trump, including a minimum 10% tariff on most imports. These measures contributed to a contraction in GDP, with the Atlanta Federal Reserve forecasting a 2.8% quarter-on-quarter decline, a stark reversal from earlier growth projections. Inflationary pressures intensified, and labour market also showed signs of strain, as nonfarm payrolls increased by only 135,000 in March, down from 151,000 in February, with the unemployment rate remaining at 4.1%.
The euro area GDP growth stagnated 0% in the fourth quarter of 2024 compared to the 0.4% growth in the previous quarter, and an annual increase of 0.9%. Inflationary trends were concerning, as the rate climbed to 2.5% in January 2025, although fell to 2.2% in March, surpassing expectations and complicating the European Central Bank’s monetary policy decisions. Energy prices notably contributed to this uptick. Meanwhile, China’s economic growth picked up over the previous quarters amid implementation of fiscal stimulus measures, including a 10 trillion-yuan bond swap by local governments, however, these efforts were insufficient to offset the economic impact of property sector crunch. Fitch projected a slowdown in China’s economic growth to 4.4% in 2025 from 5.0% in 2024, influenced by ongoing property sector challenges and declining export prospects due to U.S. trade measures. Overall, the first quarter of 2025 highlighted the significant impact of trade policies and geopolitical tensions on the macroeconomic indicators of major economies, with rising inflation and slowing growth posing challenges for policymakers worldwide.
Update on ‘Trump tariffs’: This review covers update in the first quarter (01 January to 31 March 2025); however, the world of tariffs is changing rapidly so here is a quick update on this issue. As of 09 April 2025, China announced it would raise its reciprocal tariffs on US goods to 84%, up from 34% they announced few days ago, as tensions between the world’s two largest economies escalated. This move followed President Trump’s imposition of tariffs on several countries, including a massive increase in levies on Chinese goods to 104%, which is 50% addition to 54% already announced. Many other countries including Japan are taking a bit cautious approach to get a better deal on trade with US. However, the European Union on Wednesday voted to approve its first set of retaliatory measures to counter tariffs imposed by the US on steel and aluminium as well as tariffs of 20% on almost all its US imports. The EU’s commissioner for trade and economic security said Monday that the bloc would start collecting a first tranche of tariffs on US imports from April 15, with a second set of measures following on May 15. Vietnam offered to reduce tariffs on US goods to 0% to avoid trade disputes with the US. However, this is a developing story, and numbers can change significantly in coming days and weeks.
Looking at the performance of major asset classes in Q1 2025, global financial markets faced a turbulent start to the year and provided a mixed performance, marked by heightened volatility and widespread declines across major indices. Key drivers included renewed geopolitical tensions, particularly from US tariff escalations under President Trump, rising inflationary concerns, and slower than expected economic growth in major economies. The S&P 500 posted its worst quarterly performance since 2022 falling roughly 4.3%, while Asian markets also struggled amid uncertainty over trade disruptions and monetary policy direction. Japan’s Nikkei 225 plummeted by 10.7% in Q1. The benchmark for Shariah compliant equities DJ Islamic markets index declined just under 6%. Investor sentiment was further shaken by fluctuating energy prices and ongoing conflicts in the Middle East. On the other hand, Europe’s Euronext 100 and the UK FTSE 100 ended the quarter on the positive note with 6.78% and 6.1% rise, respectively, backed by the heavy defence spending initiatives and Germany’s fiscal stimulus packages. Overall, risk aversion dominated market behaviour, with capital flowing into safe-haven assets like gold and government bonds. Gold was the best performing asset, rising by 18.9% while DJ Sukuk index increased by 2.3%. Finally, the UK GBP appreciated by 3.23% against US dollar in Q1.
Performance of Global Assets Q1 2025
Portfolio Commentary
During the first quarter, all our portfolios depreciated in value to varying degree particularly driven by policy uncertainty, US tariff escalation under President Trump, rising inflationary concerns and slowing economic growth in major economies. The lower risk portfolios, namely Defensive, Conservative and Cautious depreciated in value partly impacted by greater rise in GBP/USD (3.23%) than the rise in sukuk values (2.3%) in Q1. Progressive Growth depreciated the most, with a 4.7% drop in value during the quarter. Our relatively defensive position with higher risk portfolios mitigated the downside.
Performance of Simply Ethical Online Portfolios in Q4 (01 January 2025 – 31 March 2025)
During the quarter, there were no changes made to the investment allocation for any portfolios. Given our cautious view on equity markets, we had maintained a relatively higher sukuk allocation particularly for Balanced Growth, Growth and Progressive Growth portfolios, although, overtime equity allocation is expected to rise as we see correction in equity market. There are challenges for the fixed income market due to monetary policy uncertainties, therefore, we maintain diversification across different asset classes (equities, sukuks and commodities) and regions/markets for all portfolios. We continue to maintain a cautious view on investments, as current market valuation may be difficult to maintain given challenging macroeconomic environment ahead and heightened political uncertainties – both remain a possible risk to the markets.
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Disclaimer
This article is for information only. Please do not act based on anything you might read in this article. Past performance is not a reliable indicator of current or future returns. This article contains general information only and does not consider individual objectives, taxation position or financial needs. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. It is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy to any person in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it would be unlawful to market such an offer or solicitation.
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