Mounting concerns about a potential recession, fueled by volatile markets and anxieties over US President Donald Trump’s economic policies, are driving investors towards safer assets. Data from Betashares indicates a significant shift in investment strategies, with a third of new money flowing into exchange-traded funds (ETFs) this month directed towards fixed income strategies – a 16% increase compared to February. Cash-focused ETFs are also attracting a larger proportion of new investments. This repositioning comes amidst growing fears that Trump’s policies, including potential cuts to federal government spending and tariffs on key trading partners, could trigger a US recession. JPMorgan analysts estimate a 40% chance of a recession, while Goldman Sachs puts the probability at 20%.
The market reaction has been palpable, with the S&P/ASX 200 Index experiencing sharp declines, mirroring sell-offs on Wall Street. While initial data does not indicate a full rotation from equities, anecdotal evidence suggests investors are taking profits and becoming more risk-averse. Betashares noted muted flows into international equity ETFs this month compared to January and February, reflecting a waning optimism about Trump’s economic agenda. Interest in Australian equities ETFs, however, remained relatively robust.
Despite the overall trend toward safety, some investors are showing interest in specific sectors like defense and Asian technology. Currency-hedged international shares ETFs are also gaining traction, coinciding with signs of US dollar weakness. Investment strategists emphasize diversification as a crucial strategy for navigating uncertainty, particularly in an environment characterized by sticky inflation and concerns about economic growth.
