Rising tensions between the US, and Russia and China, are injecting unpredictable volatility into financial markets, as fund managers and advisers move to calm investors while hoarding safe haven cash.
Anthony Rayner, multi-asset fund manager at Miton, said the risks faced by investors have undoubtedly risen over the past month, after a series of spats between the US and other nations over trade, most notably China and Russia.
Just before the weekend, President Trump announced tighter sanctions on Russia, targeting seven high-profile Russian businessmen and their companies, hitting global commodity markets and the energy and industrial sectors.
It followed a deterioration in relations between the US and China since the start of the year, also resulting in sanctions and counter sanctions on trade.
Volatile outbursts from world leaders have led to volatile markets, leaving both professional and amateur investors jittery.
David Scott, an adviser at Andrews Gwynne in Leeds, said the market-moving rhetoric about a trade war has come to an end with actual policies having been introduced.
But he believes a combination of trade wars and higher interest rates will bring the bull market to an end in "ugly fashion." He currently has some portfolios with 40 per cent deployed in cash.
Jacob De Tusch Lec, who runs the £4bn Artemis Global Income fund said, not only will the subsequent imposition of tariffs be bad for the global economy, it will also add to the inflationary pressures in the US.
"That comes just at the point where wages are starting to rise. On the one hand, it could cause interest rates to rise too quickly and kill demand for risk assets such as equities.
"On the other hand, it could move too slowly and let inflation loose, which might also be bad for equities," he said.
Tariffs of the kind planned in the announced sanctions between the US, China and Russia, create inflation because the price of imported goods rises, and if consumers switch to domestically made goods of the same type, then the price of the domestically produced alternative will rise as demand rises at a faster pace than supply.
Where this impact commodities such as steel, which are used by manufacturers and consumers in a range of other industries, the inflation then percolates throughout the rest of the economy, pushing up the value of other goods and services, and damaging growth.
The big losers from the markets most recent fears about the impact of tariffs have been the mining companies, with Rio Tinto and Glencore taking big hits.
Rio Tinto shares have fallen from £40.89 to the present £36.88 in the three months to today (10 April) amid fears that a trade war would hurt demand for commodities.
However more muted rhetoric from Mr Trump and the Chinese government in recent days has resulted in Rio Tinto shares rising by 2 per cent today.
Glencore’s share price suffered due to the company’s exposure to Russia, with chief executive Ivan Glasenberg a board member of Rusal, a Russian commodity business, being one of the people targeted by Donald Trump's recent sanctions announcement.
Glencore also had an agreement with En+, another business that is subject to sanctions, and concerns about exposure to the Russian energy sector sent Glencore’s share price down 5 per cent on Monday.
Mr Glasenberg has confirmed he is to stand down as a director of the firm
Elsewhere the possibility of US military action in Syria has caused the oil price to rise.
Simon Edelsten, manager of the £86m Artemis Global Select fund, said a notable feature of the recent volatility has been that some of the sectors and individual stocks which have looked most expensive, actually performed better than the "cheaper" value stocks.
Mr De Tusch Lec said he thinks the chances of a global recession this year of next are lower now than they were three months ago, but he is avoiding defensive stocks in favour of companies such as banks, which benefit from higher growth rates.
Mr Rayner added that most of what has happened so far has been words from politicians, rather than fundamental change. He thinks investors should focus on the fundamentals and ignore the noise.
David.Thorpe@ft.com
