Investing in a tariff-filled world

[SINGAPORE] On Apr 2, President Donald Trump made waves when he unveiled a sweeping set of tariffs targeting over 180 countries, calling it America’s “Liberation Day”. But just a week later, he took a surprising turn, announcing a 90-day suspension of all reciprocal tariffs and reducing most rates to 10 per cent.

The exception is notably China, where the tariff rate was kept at a staggering 145 per cent. By Apr 11, China had hit back, slapping an equally hefty 125 per cent tariff on US goods. This back-and-forth has sparked fears of a full-blown trade war between the world’s two largest economies.

Currently, the US is considering scaling back its tariffs on China to ease tensions. China, on the other hand, has offered some relief by exempting certain US imports. Despite the minor de-escalation, the situation remains volatile and unpredictable, with both nations locked in a stand-off.

Meanwhile, global stock markets have experienced sharp fluctuations, and experts warn that more volatility could be on the horizon. So, what is an investor to do? Let’s explore the potential impacts of a trade war and highlight several types of stocks to consider in these uncertain times.

Higher costs and dampened business sentiment

The most immediate and noticeable impact of these tariffs is the rise in costs for a wide range of businesses. Tariffs add an extra financial burden on companies, driving up operational expenses. As a result, many businesses may take a cautious approach – delaying expansion plans, cutting back on investments and freezing hiring as they wait to see how the situation unfolds.

Some companies may opt to pass these higher costs on to consumers, leading to price hikes on goods and services. In turn, these price increases are likely to dampen consumer sentiment, prompting people to tighten their belts.

While these are the direct consequences of the tariffs, there could also be ripple effects that are harder to predict right now. For example, businesses might reassess their supply chains, move production to other countries or even shelve expansion plans altogether.

With consumer confidence expected to remain weak, here are some categories of stocks that can help you weather the tariff storm – either by mitigating its impact or steering clear of it altogether.

Strong brands with pricing power

First, consider companies that sell consumer staples – everyday products like body care items, food and beverages, and household essentials. Ideally, look for businesses with a strong market presence and well-known brands that people rely on daily. These companies have the advantage of raising prices without significantly hurting their sales. Consumers tend to keep buying these essential products, even with price hikes.

In addition, large companies can benefit from cost savings through bulk purchasing and negotiating better deals with suppliers, thanks to their size and reputation. Examples include industry leaders like Kimberly-Clark, Procter & Gamble and Colgate-Palmolive.

Kimberly-Clark is behind popular brands like Kleenex tissues, Huggies diapers and Kotex sanitary pads. Along the same lines, Procter & Gamble sells household names such as Pantene and Head & Shoulders shampoos, Oral-B toothbrushes and Gillette razors. Meanwhile, Colgate-Palmolive is famous for its Colgate toothpaste and Palmolive soap. There’s also PepsiCo, known for its wide range of beverages and snack foods.

These everyday necessities are hard to live without. Even if prices rise, most consumers will continue to spend on these products.

Long-term growth tailwinds

Next, let’s look at stocks in sectors that benefit from long-term trends, which are unlikely to be disrupted by Trump’s tariffs.

One such sector is cybersecurity. The digital transformation over the past five years has driven a massive surge in demand for threat detection and protection services. As more organisations adopt cloud computing, the need for robust cybersecurity measures grows – companies need to protect their sensitive data from increasing cyber threats.

Cybersecurity leaders like Crowdstrike, Palo Alto Networks and Zscaler are positioned to benefit from this ongoing trend. While tariffs may raise the cost of their services, customers are likely to continue paying for these security solutions, as these platforms become deeply integrated into their systems – creating high switching costs and making it harder for companies to change providers.

Alongside this surge in data usage, the demand for data centres is also expected to remain strong. Giants in this area such as Equinix, and data centre Reits like Keppel DC Reit, are likely to experience sustainable growth, helping them weather the impact of tariffs.

Minimising the US impact

A third category of stocks that could be shielded from Trump’s tariffs are those that generate most or all of their revenue from Singapore or other parts of Asia. Since these companies have little to no business dealings with the US, they’re largely insulated from the direct impact of higher reciprocal tariffs.

Take Sheng Siong, for example. This supermarket chain earned a staggering 97.6 per cent of its revenue from Singapore in 2024, making it almost entirely reliant on the local market. Another example is Haw Par Corporation, the company behind the famous Tiger Balm. Last year, around 75 per cent of its revenue came from Singapore and other Asian markets.

Then there’s ComfortDelGro Corporation, a leader in land transport. It didn’t earn a single dollar from the US last year. Instead, the company’s revenue came from markets like Singapore, Australia, UK and the EU.

These companies’ focus on Asia makes them less vulnerable to the ripple effects of the ongoing trade tensions.

Thriving despite the volatility

Finally, some stocks actually thrive in the market volatility caused by Trump’s tariffs. A prime example is Singapore Exchange (SGX). Its range of hedging products becomes especially popular with investors and portfolio managers during times of heightened market turbulence.

In particular, SGX’s derivatives – spanning equity index futures, foreign exchange and commodity derivatives – saw a spike in trading volumes during the market sell-off following Trump’s “Liberation Day” announcement.

If volatility persists in the months ahead, the bourse is poised to benefit from increased trading activity, which should drive higher revenues. SGX isn’t just waiting for things to play out. It has plans to launch Bitcoin perpetual futures later this year, which could further boost trading volumes.

For investors looking for a defensive play, SGX offers a strong opportunity, as the exchange tends to thrive on the uncertainty and volatility created by ongoing market disruptions.

Get smart: Adjust your portfolio

In light of the sweeping tariff announcements, investors need to rethink their assumptions and reassess their portfolios. Tariffs are likely to raise costs for businesses and could even set off a full-blown trade war.

However, you can still position your portfolio defensively, ensuring it stays resilient despite the ongoing volatility and uncertainty. It’s hard to predict what moves Trump might make next, but with the right strategy and knowledge on which stocks to invest in, you’ll be well-positioned for long-term success.

The writer owns shares of Keppel DC Reit and SGX. He is portfolio manager of The Smart Investor, a website that aims to help people invest smartly by providing investor education, stock commentary and market coverage