July 13, 2025 • 12 mins
Donald Trump has begun imposing his Liberation Day tariffs on friends and foes alike.
Damien Hennessy, Investment Director at Zenith Investment Partners joins Sean Aylmer to talk about what investors should make of these new tariffs, and how they should respond.
Find out more: https://fearandgreed.com.au
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Welcome to the Fear and Greed business Interview. I'm Sean Alma.
Last week Donald Trump began imposing his Liberation Day tariffs
on friend and foes alike. While Australia is yet to
receive a so called tariff letter, presumably one is on
the way ahead of the implementation date of one August.
What should investors make of these new tariffs? How should
they respond to help finanswers to these questions? I welcome
(00:26):
to Fear and Greed, Damien Hennessy ahead of asset Allocation
at Zenith Investment Partners. Damien, Welcome to Fear and Greed.
Speaker 2 (00:33):
Thanks JN. Thanks very much for having me.
Speaker 1 (00:35):
Before we get to the investing part, broadly, what do
tariffs and what's going on in the global economy or
what's that mean for the global economy? What's the macro
background for investors to consider?
Speaker 2 (00:47):
Yeah, I think, as you highlighted, tariffs has been a
dominant feature since really since the beginning of April. So
when you think about the market tends to think about
what the average tariff freid is likely to be in
the That's the way they determine what the impact might
be and suppose if you go back to early April
when the tariffs were initially announced by President Trump, the
(01:10):
average tarifright looked like it was going to be something
like twenty eight percent. Remember it's been two and a
half percent for the past thirty years, so this is
an enormous increase in the average tariff right. Of course,
that's changed over the period that when as low as
or came by May, when the tariffs on China were
(01:30):
cut back from remember one hundred and forty five down
to twenty to thirty percent, it meant the average tarifreight
in the US was now closer to fifteen percent, and
markets like that. But of course since then and over
the last few days, we've had various announcements of higher
tariffs across Japan, Career, Vietnam, and Brazil, and so it
(01:52):
leaves the average tarifreight a bit higher. So cut to
the chase, what it means most likely is a lower
growth outlook and a higher inflation outlook, the so called
stagflationary impact if you like.
Speaker 1 (02:06):
Okay, so who pays the tariffs right and how should
investors respond? So let's start with who pays it, because
I'm sure the investment part kind of comes back to
who pays them.
Speaker 2 (02:18):
Yes, yeah, Look, maybe i'll use an example, so think
of a think of a washing machine. I don't know
why I think of washing machine, but let's talk about that.
Speaker 1 (02:28):
So pretty appropriate, I think.
Speaker 2 (02:30):
Very appropriate. So it comes into the US, say it
one hundred dollars safe, let's say, from China, and that's
paid for by the importer, so they're paid one hundred dollars.
They then on sell it. They want to take their
profit margin. They sell it on to the whole saler
at say one hundred and fifty dollars. The whole saler
then sells it onto the retailer's let's in this example
(02:50):
use two hundred dollars. So everyone's making their roughly a
fifty percent margin, and the retailer then sells it to
the end consumer for three hundred dollars. That's where things
were pre April two. So post April two, the twenty
percent tariff on that same washing machine. The importer pays
it initially, but of course they want to if they
(03:12):
want to maintain their margin. They're not going to sell
it for one hundred and fifty, are they. They're going
to sell it for one hundred and eighty. One hundred
and eighty will allow them to maintain their margin. And then,
of course the wholesale is not going to want to
have their profit margin hit, so they're going to up
their price in selling it to the retailer. And likewise,
the retailer, if they want to maintain their profit margin
(03:34):
as it was previously a'd say fifty percent, they're going
to sell it onto the consumer at four hundred and eighty.
So that fridge has all of a sudden gone up
quite considerably to the consumer. So there's your sort of
first level direct impact from a tariff consumer pays. However,
in a world where typically well in this example, all goods,
(03:59):
most goods are getting sort of tariff and in many
instances there isn't a domestic alternative to that product, to
that good, and so what it means then is if
a lot of goods are attracting tariffs, then the real
spending power of the US consumer declines. They've got less
money to go around much more expensive goods, so they
(04:20):
cut back their spending. Or the way this could flow
through to the corporate sector is their profit margins then
have to take a hit. So the consumer pays ultimately,
and probably to a lesser extent, the corporate sector has
to pay through lower profit margins. And this is the
way tariffs work their way through the economy. It's not,
(04:41):
as the Trump administration has said, it's not as if
the foreign countries pay the tariff.
Speaker 1 (04:48):
Okay. So whichever way you look at it, whether the
consumer is paying more or the company is taking a
bite out of their profit, it's poor for economic growth.
As an investor, what do you do? And just broadly, firstly,
how do you think about it?
Speaker 2 (05:05):
So you might be familiar with the term the taco trade,
so that's become quite a bit of a joke around markets,
but it's been real. So we've seen on a number
of occasions when these big tariffs are announced, they're subsequently
withdrawn when the markets start to reflect all the uncertainty
and the impact on growth and inflation. So when you
(05:28):
think about it from the impact on growth and inflation,
I think you probably would say that it's a negative.
As I mentioned before, it's a negative impact on growth.
It tends to lift inflation at the margin and can
have an impact on corporate profits. So from an investor's
point of view, you've got to weigh up all those factors.
But in addition to that, you've got to weigh up
(05:49):
whether those tariffs are going to be sustained or not.
And this is where it's highly uncertain for investors.
Speaker 1 (05:55):
Stay with me, Damien it we'll be back in a minute.
I'm speaking to Damien. How does the head of asset
allocation at Enyth Investment Partners. Before the break you were
I think the last word you used was uncertain and
uncertainty kills financial markets. People don't like that. So let's
(06:17):
talk about specifically how to invest. And I want to
come to asset allocation because in many returns actually acid
allocation as much as it is you know the stocks
you pick or the bonds you pick. So start with
equities if you want to balanced portfolio, and sorry, if
you want a good PORTFOI balance. It's got a specific
meaning in investing, and I don't actually want that. Like
(06:38):
if you have a decent portfolio in your mind, Damien,
what should you be doing about equity's local and international?
Speaker 2 (06:45):
So when it comes again to the tariff question and
the impact of tariff's on markets, I suppose, on the
one hand, equity so earnings can stay up relatively high
as long as, as I said before, profit margins don't
take a big hit. So it depends on how the
consumer reacts, and if the consumer pull their spending habits in,
then that will ultimately flow through to equity markets. But
(07:08):
it's interesting if you look at the performance of equities
over the last say couple of months, and particularly while
I'll start with the US, you've seen the return of
the Magnificent six or seven. They've started to produce really
strong returns once again, and the reason for that is
they're not that much impacted by tariffs. That's part of
the reason, and their earnings growth continues on despite the uncertainty.
(07:33):
The other I guess larger part of the US market
that's probably more sensitive to the tariff increases. So we
would sort of feel that, yeah, US equities can keep
doing okay, but you'll probably be very careful about the
sectors that you're involved in. Don't be investing in those
that are impacted by tariffs, and those sectors tend to
be financial. Some of the tech sector can do reasonably well.
(07:57):
What we would also advocate is broadening out your exposures
out of just US equities alone. So Europe seems to
be really well positioned. Yes, they'll be hit by tariffs,
but on the other side of the coin, they are
busily spending on infrastructure and defense, or at least will
be over the years ahead, so that's a positive. And
(08:18):
of course they've got lower interest rates, as Trump keeps
pointing out, they've cut rates about eight times, so Europe
is reasonably well positioned, and closer to home domestically, well,
we're not that we're not hit that much by the
tariff policy, and in fact, I would think that the
impact of tarifs would tend to be more disinflationary here
(08:40):
in Australia, and the reason for that is China and
other countries, if they can't be selling as much to
the US, will probably divert some of that back to
those exports back to Australia at potentially lower prices. So
that's sort of good for the domestic economy because it
takes inflation lower, allows the RBA to to step in
and possibly cut rates a couple more times this year.
(09:03):
So overall, equities look, okay, I think it's now time
where you can really make some good decisions around what
sectors you're in. Less impacted by tariffs and broaden out
your country allocations. Bonds. Bonds tricky are not going to
always provide the diversification that you have become used to,
(09:24):
and the reason for that is that stickiness and inflation
as a result of tariff. So yes, you've got to
have some I think in the portfolio for that recessionary
risk that it always lurks out there, But they're not
going to provide your diversification if we get a bit
of an uplift in inflation.
Speaker 1 (09:41):
Okay, what about real assets, property, infrastructure, those sorts of
assets listed and unlisted.
Speaker 2 (09:46):
Yeah, I think they're well positioned. So if you were
to say to me growth is going to be a
little bit lower and inflation is going to be a
bit stickier or a bit higher, I would immediately go, well, yeah,
real assets look well positioned for that that they're a
function of real yields, and real yields are at levels
that are fair value if you like. So, yes, we
(10:07):
would tend to have a preference for real assets.
Speaker 1 (10:10):
Okay, and then alternatives outside real assets.
Speaker 2 (10:12):
Yeah, it's such a wide range of different exposures that
you can have in there. I suppose some of them
have a role, you know, those that provide sort of
tail risk hedging characteristics, you know, in the event that
we're all wrong and the markets take a massive hit
from tariff. So yeah, be very specific, and it's very
(10:33):
very strategy and fund manager driven that part of the market.
Speaker 1 (10:37):
Okay, the other interesting we don't talk much about currency.
I'm sure you talk about currencies all the time, but
you know, we talk about asset classes. But currency can
make such a big difference to your ultimate return and
how you treat currencies, whether you hedge or not. What's
your take on the Aussie dollar for Australian investors.
Speaker 2 (10:54):
I think right now it's more about US dollar, not
so much Ossie dollar. So it's US dollar against everything else.
US dollar has been very expensive and strong for a
number of years. I think the current administration the US
probably prefers a weaker US dollar and most of the
policy announcements are probably leading that way. So tariff policy,
(11:16):
to the extent it reduces the deficit, probably means a
lower US dollar, less requirement for money to flow into
the US. The concerns over future Fed independence that tends
to undermine the case for US dollar strength. So I
think it's more about that. So from a portfolio perspective,
I would suggest, and what we have been doing is
(11:39):
increasing our hedge ratio, so being a little bit more
in Aussie dollars and a little bit less in foreign currency.
But again it's more of a you'd prefer to hedge
the US dollar positions rather than the Euro and the
end which those currencies also look quite cheap.
Speaker 1 (11:56):
We're totally out of time, Damian. In fact, for about
two minutes over time. Whoever, bottom line here as an
investor in Australia, what is it?
Speaker 2 (12:05):
Well, it sticks stick to your long term plan. There
will be some volatility I think over the months ahead
because markets are finally priced. But I would suggest to
investors stay reasonably well diversified. Only put positions on where
you have a sort of a strong conviction around the
medium term economic outlook.
Speaker 1 (12:23):
Damien, thank you for talking to Fear and Greed.
Speaker 2 (12:25):
Thank you very much.
Speaker 1 (12:26):
This is the Fear and Greed Business Interview. Remember we
are not an investment podcast and this is not investment advice.
If you want to invest, we always recommend visiting a
financial advisor. Join us every morning for the full episode
of Fear and Greed Business News you can use. I'm
Sean Elmer. Enjoy your day,
Welcome to the Fear and Greed business Interview. I'm Sean Alma.
Last week Donald Trump began imposing his Liberation Day tariffs
on friend and foes alike. While Australia is yet to
receive a so called tariff letter, presumably one is on
the way ahead of the implementation date of one August.
What should investors make of these new tariffs? How should
they respond to help finanswers to these questions? I welcome
(00:26):
to Fear and Greed, Damien Hennessy ahead of asset Allocation
at Zenith Investment Partners. Damien, Welcome to Fear and Greed.
Speaker 2 (00:33):
Thanks JN. Thanks very much for having me.
Speaker 1 (00:35):
Before we get to the investing part, broadly, what do
tariffs and what's going on in the global economy or
what's that mean for the global economy? What's the macro
background for investors to consider?
Speaker 2 (00:47):
Yeah, I think, as you highlighted, tariffs has been a
dominant feature since really since the beginning of April. So
when you think about the market tends to think about
what the average tariff freid is likely to be in
the That's the way they determine what the impact might
be and suppose if you go back to early April
when the tariffs were initially announced by President Trump, the
(01:10):
average tarifright looked like it was going to be something
like twenty eight percent. Remember it's been two and a
half percent for the past thirty years, so this is
an enormous increase in the average tariff right. Of course,
that's changed over the period that when as low as
or came by May, when the tariffs on China were
(01:30):
cut back from remember one hundred and forty five down
to twenty to thirty percent, it meant the average tarifreight
in the US was now closer to fifteen percent, and
markets like that. But of course since then and over
the last few days, we've had various announcements of higher
tariffs across Japan, Career, Vietnam, and Brazil, and so it
(01:52):
leaves the average tarifreight a bit higher. So cut to
the chase, what it means most likely is a lower
growth outlook and a higher inflation outlook, the so called
stagflationary impact if you like.
Speaker 1 (02:06):
Okay, so who pays the tariffs right and how should
investors respond? So let's start with who pays it, because
I'm sure the investment part kind of comes back to
who pays them.
Speaker 2 (02:18):
Yes, yeah, Look, maybe i'll use an example, so think
of a think of a washing machine. I don't know
why I think of washing machine, but let's talk about that.
Speaker 1 (02:28):
So pretty appropriate, I think.
Speaker 2 (02:30):
Very appropriate. So it comes into the US, say it
one hundred dollars safe, let's say, from China, and that's
paid for by the importer, so they're paid one hundred dollars.
They then on sell it. They want to take their
profit margin. They sell it on to the whole saler
at say one hundred and fifty dollars. The whole saler
then sells it onto the retailer's let's in this example
(02:50):
use two hundred dollars. So everyone's making their roughly a
fifty percent margin, and the retailer then sells it to
the end consumer for three hundred dollars. That's where things
were pre April two. So post April two, the twenty
percent tariff on that same washing machine. The importer pays
it initially, but of course they want to if they
(03:12):
want to maintain their margin. They're not going to sell
it for one hundred and fifty, are they. They're going
to sell it for one hundred and eighty. One hundred
and eighty will allow them to maintain their margin. And then,
of course the wholesale is not going to want to
have their profit margin hit, so they're going to up
their price in selling it to the retailer. And likewise,
the retailer, if they want to maintain their profit margin
(03:34):
as it was previously a'd say fifty percent, they're going
to sell it onto the consumer at four hundred and eighty.
So that fridge has all of a sudden gone up
quite considerably to the consumer. So there's your sort of
first level direct impact from a tariff consumer pays. However,
in a world where typically well in this example, all goods,
(03:59):
most goods are getting sort of tariff and in many
instances there isn't a domestic alternative to that product, to
that good, and so what it means then is if
a lot of goods are attracting tariffs, then the real
spending power of the US consumer declines. They've got less
money to go around much more expensive goods, so they
(04:20):
cut back their spending. Or the way this could flow
through to the corporate sector is their profit margins then
have to take a hit. So the consumer pays ultimately,
and probably to a lesser extent, the corporate sector has
to pay through lower profit margins. And this is the
way tariffs work their way through the economy. It's not,
(04:41):
as the Trump administration has said, it's not as if
the foreign countries pay the tariff.
Speaker 1 (04:48):
Okay. So whichever way you look at it, whether the
consumer is paying more or the company is taking a
bite out of their profit, it's poor for economic growth.
As an investor, what do you do? And just broadly, firstly,
how do you think about it?
Speaker 2 (05:05):
So you might be familiar with the term the taco trade,
so that's become quite a bit of a joke around markets,
but it's been real. So we've seen on a number
of occasions when these big tariffs are announced, they're subsequently
withdrawn when the markets start to reflect all the uncertainty
and the impact on growth and inflation. So when you
(05:28):
think about it from the impact on growth and inflation,
I think you probably would say that it's a negative.
As I mentioned before, it's a negative impact on growth.
It tends to lift inflation at the margin and can
have an impact on corporate profits. So from an investor's
point of view, you've got to weigh up all those factors.
But in addition to that, you've got to weigh up
(05:49):
whether those tariffs are going to be sustained or not.
And this is where it's highly uncertain for investors.
Speaker 1 (05:55):
Stay with me, Damien it we'll be back in a minute.
I'm speaking to Damien. How does the head of asset
allocation at Enyth Investment Partners. Before the break you were
I think the last word you used was uncertain and
uncertainty kills financial markets. People don't like that. So let's
(06:17):
talk about specifically how to invest. And I want to
come to asset allocation because in many returns actually acid
allocation as much as it is you know the stocks
you pick or the bonds you pick. So start with
equities if you want to balanced portfolio, and sorry, if
you want a good PORTFOI balance. It's got a specific
meaning in investing, and I don't actually want that. Like
(06:38):
if you have a decent portfolio in your mind, Damien,
what should you be doing about equity's local and international?
Speaker 2 (06:45):
So when it comes again to the tariff question and
the impact of tariff's on markets, I suppose, on the
one hand, equity so earnings can stay up relatively high
as long as, as I said before, profit margins don't
take a big hit. So it depends on how the
consumer reacts, and if the consumer pull their spending habits in,
then that will ultimately flow through to equity markets. But
(07:08):
it's interesting if you look at the performance of equities
over the last say couple of months, and particularly while
I'll start with the US, you've seen the return of
the Magnificent six or seven. They've started to produce really
strong returns once again, and the reason for that is
they're not that much impacted by tariffs. That's part of
the reason, and their earnings growth continues on despite the uncertainty.
(07:33):
The other I guess larger part of the US market
that's probably more sensitive to the tariff increases. So we
would sort of feel that, yeah, US equities can keep
doing okay, but you'll probably be very careful about the
sectors that you're involved in. Don't be investing in those
that are impacted by tariffs, and those sectors tend to
be financial. Some of the tech sector can do reasonably well.
(07:57):
What we would also advocate is broadening out your exposures
out of just US equities alone. So Europe seems to
be really well positioned. Yes, they'll be hit by tariffs,
but on the other side of the coin, they are
busily spending on infrastructure and defense, or at least will
be over the years ahead, so that's a positive. And
(08:18):
of course they've got lower interest rates, as Trump keeps
pointing out, they've cut rates about eight times, so Europe
is reasonably well positioned, and closer to home domestically, well,
we're not that we're not hit that much by the
tariff policy, and in fact, I would think that the
impact of tarifs would tend to be more disinflationary here
(08:40):
in Australia, and the reason for that is China and
other countries, if they can't be selling as much to
the US, will probably divert some of that back to
those exports back to Australia at potentially lower prices. So
that's sort of good for the domestic economy because it
takes inflation lower, allows the RBA to to step in
and possibly cut rates a couple more times this year.
(09:03):
So overall, equities look, okay, I think it's now time
where you can really make some good decisions around what
sectors you're in. Less impacted by tariffs and broaden out
your country allocations. Bonds. Bonds tricky are not going to
always provide the diversification that you have become used to,
(09:24):
and the reason for that is that stickiness and inflation
as a result of tariff. So yes, you've got to
have some I think in the portfolio for that recessionary
risk that it always lurks out there, But they're not
going to provide your diversification if we get a bit
of an uplift in inflation.
Speaker 1 (09:41):
Okay, what about real assets, property, infrastructure, those sorts of
assets listed and unlisted.
Speaker 2 (09:46):
Yeah, I think they're well positioned. So if you were
to say to me growth is going to be a
little bit lower and inflation is going to be a
bit stickier or a bit higher, I would immediately go, well, yeah,
real assets look well positioned for that that they're a
function of real yields, and real yields are at levels
that are fair value if you like. So, yes, we
(10:07):
would tend to have a preference for real assets.
Speaker 1 (10:10):
Okay, and then alternatives outside real assets.
Speaker 2 (10:12):
Yeah, it's such a wide range of different exposures that
you can have in there. I suppose some of them
have a role, you know, those that provide sort of
tail risk hedging characteristics, you know, in the event that
we're all wrong and the markets take a massive hit
from tariff. So yeah, be very specific, and it's very
(10:33):
very strategy and fund manager driven that part of the market.
Speaker 1 (10:37):
Okay, the other interesting we don't talk much about currency.
I'm sure you talk about currencies all the time, but
you know, we talk about asset classes. But currency can
make such a big difference to your ultimate return and
how you treat currencies, whether you hedge or not. What's
your take on the Aussie dollar for Australian investors.
Speaker 2 (10:54):
I think right now it's more about US dollar, not
so much Ossie dollar. So it's US dollar against everything else.
US dollar has been very expensive and strong for a
number of years. I think the current administration the US
probably prefers a weaker US dollar and most of the
policy announcements are probably leading that way. So tariff policy,
(11:16):
to the extent it reduces the deficit, probably means a
lower US dollar, less requirement for money to flow into
the US. The concerns over future Fed independence that tends
to undermine the case for US dollar strength. So I
think it's more about that. So from a portfolio perspective,
I would suggest, and what we have been doing is
(11:39):
increasing our hedge ratio, so being a little bit more
in Aussie dollars and a little bit less in foreign currency.
But again it's more of a you'd prefer to hedge
the US dollar positions rather than the Euro and the
end which those currencies also look quite cheap.
Speaker 1 (11:56):
We're totally out of time, Damian. In fact, for about
two minutes over time. Whoever, bottom line here as an
investor in Australia, what is it?
Speaker 2 (12:05):
Well, it sticks stick to your long term plan. There
will be some volatility I think over the months ahead
because markets are finally priced. But I would suggest to
investors stay reasonably well diversified. Only put positions on where
you have a sort of a strong conviction around the
medium term economic outlook.
Speaker 1 (12:23):
Damien, thank you for talking to Fear and Greed.
Speaker 2 (12:25):
Thank you very much.
Speaker 1 (12:26):
This is the Fear and Greed Business Interview. Remember we
are not an investment podcast and this is not investment advice.
If you want to invest, we always recommend visiting a
financial advisor. Join us every morning for the full episode
of Fear and Greed Business News you can use. I'm
Sean Elmer. Enjoy your day,
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