Investors must urgently diversify their global stock and bond portfolios to navigate the highly volatile period expected to follow US President Donald Trump’s “Liberation Day” announcement of across-the-board tariffs, analysts say, amid rising concerns about a possible US recession and global economic slowdown.

Early on Thursday ( Hong Kong time ), Trump declared a US national economic emergency and announced tariffs of at least 10% across all countries, with rates going even higher for Asian countries including China – 54%, Vietnam – 46%, Thailand – 36%, Taiwan – 32%; India –26%, Japan – 24%,  and South Korea – 25%. The European Union faces 20%. ​

“Asia bears the brunt of these tariffs. The announcement suggests a larger near-term increase in inflation and a more negative impact on growth than anticipated,” says Ray Sharma-Ong, head of multi-asset investment solutions, Southeast Asia, at Aberdeen Investments. “Before the announcement, US GDP growth was expected to be between 1.2% and 1.5%. With the new tariffs, growth prospects are expected to diminish, increasing recession risks unless the Fed intervenes with a policy rescue.”  

Safe-haven assets

For investors, the hardest-hit regions, including China, South Korea, and Taiwan, are expected to experience further de-risking as investors move towards safe-haven assets such as US treasuries, Japanese yen, and gold.

“In the near term, risk assets, including US and Asian equities, may face pressure. The fear of weaker growth currently outweighs inflation concerns, potentially driving safe-haven flows into government bonds,” says Tai Hui, Asia-Pacific chief market strategist at J.P. Morgan Asset Management.

Investors are advised to switch their asset allocation to economies facing smaller tariff increases, such as Australia, the United Kingdom, Brazil, and Singapore, as well as companies in sectors like financials, healthcare, and consumer services, which may face less pressure on profit margins due to higher import costs.

“Despite the 34% tariff on China, Hong Kong and Chinese markets have shown resilience, partly due to potential stimulus from Beijing,” says Hui. “Onshore AI development could also continue to drive corporate earnings. Similarly, European equities might benefit from increased government investment in national defence.”

Relatively insulated

Some sectors seen to be less impacted by the tariffs are expected to provide opportunities for portfolio diversification.

“At this stage, there are carve-outs for key sectors, including copper, pharmaceuticals, semiconductors, and certain lumber products which help to moderate the immediate impact,” says Sean Sun, managing director and portfolio manager, Thornburg Investment Management. “Semiconductors, in particular, operate within a highly integrated global supply chain, with many critical manufacturing and assembly steps occurring outside the US, which reduces direct exposure.”

Companies like TSMC and ASML are relatively insulated. In 2024, only about 16% of ASML’s equipment shipments were for the US market, and the majority of TSMC’s chips are sent to assembly hubs in Asia before being incorporated into end products like smartphones and PCs.

But while the direct effect on TSMC and ASML may be limited in the near term, the broader impact, such as rising costs for consumer electronics, is likely to build over time.

“While we remain constructive on the long-term buildout of AI infrastructure, near-term portfolio adjustments are possible as more details emerge and if the probability of a global recession increases,” Sun says.

Following Trump’s announcement, investors concerned about potential economic downturns and higher inflation due to the tariffs were switching to US treasuries, resulting in a drop in treasury yields as bond prices and yields move inversely. The yield on the benchmark 10-year US treasury note declined to 4.156%, down from 4.245% the previous day and the lowest level since December.

Gold prices surged following the announcement, with spot gold rising by 0.6% to US$3,129.46 per ounce and approaching the all-time high of US$3,148.88 reached the previous day, as the heightened market uncertainty boosted demand for the precious metal.