It’s been a volatile time for markets, as world politics play out against a seemingly ever-changing backdrop. Milford Portfolio Manager Mark Riggall talks to Ryan Bridge about the uncertainty that’s driving the shift in sentiment, and why Milford’s position as an active manager is key to navigating market unpredictability.

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Bridge talks Business: 18 March 2025
Episode Transcript

Ryan Bridge
Kia ora, I’m Ryan Bridge and welcome to Episode 25 of Bridge talks Business with Milford. Being an investor at the moment can feel a little bit like playing chess with an octopus. You don’t know where the next move is coming from, and so much is changing so quickly. US share markets have taken a hammering over the last couple of weeks, although they’re peering back a bit. Some are piling their money into gold, others into runaway European stocks. Milford is an active investor, which means it watches, it listens, it eats, and it sleeps market movements, and Mark Riggall is with us this week. Where does the smart money go when Trump’s tariffs are coming for you? That’s next, but first for busy people, here’s your business bits.

1. Germany to the rescue. The incoming Chancellor, Frederick Mears, agreed with other parties to spend up large with some fiscal stimulus packages. What’s good for Europe’s largest economy, is also going to be good for Europe.
2. US interest rates are expected to hold steady this week. US inflation data last week was in the expected range, but that range is still outside central bank targets.
3. US consumer confidence continues to slump, but that doesn’t mean it’ll translate into weaker spending. Household balance sheets remain in pretty good nick there.
4. Volatility in the US markets continues, although they have managed to rally off the lows of last week.
5. This week we look to central bank meetings in both the US and the UK, alongside fourth quarter GDP data for New Zealand. And guess what? Growth is expected to come back, baby.

Ryan Bridge
So, as you heard in the top five business bits, we’ve got Trump making a lot of noise. We’ve got markets reacting with a lot of noise. And now we need a man of reason to come and talk to us about this. And that man is Mark Riggall. He’s a Portfolio Manager here at Milford. We’ve had him on the show before. Don’t forget this segment is informational only and should not be considered financial advice. Mark, welcome back.

Mark Riggall
Thanks. Great to be here.

Ryan Bridge
Good to see you. A little bit’s happened since we last spoke.

Mark Riggall
Yes.

Ryan Bridge
Just a few things.

Mark Riggall
Yes, that’s right.

Ryan Bridge
So, obviously the markets last week were crazy town, but they are coming back. They are starting to recover slightly.

Mark Riggall
Yeah, noisy. We’ve had a 10% correction in the US markets. It’s actually a pretty quick 10% correction. I think it’s one of the fastest of all time. So, it has changed quite a lot, but encouraging that we did see a bit of positive price action on Friday. And that’s followed through again early this week. So maybe there’s some signs of stabilisation.

Ryan Bridge
Presumably that’s because we’ve had very little in the way of tariff news. That’s what’s driving this really, isn’t it?

Mark Riggall
That’s certainly a big element of it. But let’s stand back a bit. At the beginning of the year, everyone had expected the Trump administration to be super positive for US businesses, super positive for the stock market. All of the bad stuff – they weren’t going to do – the tariff stuff was all just kind of bluffing and noise. And they weren’t going to do that. And all the good stuff was going to come through. In fact, it’s been the opposite. The bad stuff has been front loaded. They’ve talked about reducing government spending, which has been very, very strong in the US for the last few years. And so, growth expectations have been revised lower, partly because of the reduction in government spending. But also there’s been a big sentiment here – consumers, corporates, investors – because of this policy and uncertainty around tariffs. So now everyone’s gone, oh you know, compared to where we had expected US growth to be, that’s now been revised lower. And so, we’re seeing a reduction in share prices as a result.

Ryan Bridge
And that reduction in share prices, does that actually flow onto the real economy? I mean, do people start spending less because their shares and their retirement investment savings funds are worth less?

Mark Riggall
I think it can do. I think it’s too soon. And really, given the run we’ve had, a 10% correction isn’t going to touch the sides in terms of that impact. Look, if we had a 20%, 30%, more protracted drawdown, i.e. over a number of months or quarters, that’s something that we’d then be talking about. Okay, there’s a problem here. I think for 10% to do that, no, we’re not really seeing any evidence that investors in the US are concerned about that just yet.

Ryan Bridge
Do you think the stock market will come back? Do you think it’ll just keep going up? I mean, now that we know, because initially no one factored in the bad stuff. Now we know the bad stuff can and does happen, because he’s pulled trigger on some tariffs. Now that we’re all aware of the playing field, does it just keep going up? What happens?

Mark Riggall
Well, so what we’ve had is a recalibration of expectations. So, everyone was super optimistic. And that was probably a little bit too much one way. And now everyone’s come back and expectations for growth in the first quarter and second quarter now have been pegged around 1%. So, it’s not a disaster, but it’s a change from where it was at 2.5% to 3%. So, we can say that that kind of recalibration’s happened. Expectations, optimism, sentiment has also reduced. Those are two big ticks that you need to say, well actually, things can improve from here, because the basis has reduced a bit. That’s encouraging, but we’re still not out of the woods with regards to tariffs, right? We don’t know really what the long term tariff policy is going to be. And we’re not going to know that for another few weeks until April 2nd when reciprocal tariffs are due to be announced. So, I think there’s some more wood to chop. We’d expect the market to be noisy. It’s hard to call a big move in either direction, but a choppy market will be a base case.

Ryan Bridge
Okay. And then you cross the Atlantic and there’s a lot happening politically there, largely as a result of America’s, some would called it an abdication of responsibility for security, that kind of thing. But in terms of the financial markets over there, things are going actually pretty well.

Mark Riggall
Yeah. I mean, if you look at the contrast, you know, Europe share markets are actually up on the year, compared to the US down 10%. So, it’s actually quite a stark contrast. And I think what we’ve got is an unintended consequence of Trump policy is that pulling away from defence cover for Europe has actually pushed the Europeans to finally commit to some defence spending. On top of that, you’ve got Germany, which has been the sick man of Europe, has finally decided to unshackle themselves from fiscal austerity and have announced a big fiscal package of support. So, part of that is defence, but part of it is just pure fiscal stimulus for the economy, which is the package they have announced is actually huge as a percentage of GDP. So, that’s very positive for Europe. And of course, share prices are performing accordingly in Europe. So, it’s the opposite story.

Ryan Bridge
And obviously, you mentioned the German stimulus, but also the potential for an end of the war in Ukraine. I mean, all of these things are kind of positives for the Europe side of the equation. What do you do? Because Milford’s an active investor, you’re obviously eating and sleeping and watching and listening to all of this stuff. So, what are you guys doing about exposure to both of these markets at the moment?

Mark Riggall
Yeah, so I mean, the European situation was almost polar opposite to the US, where sentiment and expectations for Europe were so low that they could only improve, right. And so, at the end of last year, when we were looking around the world and trying to figure out where to invest, and we were looking at the US and going, well, look, it looks a reasonable place to be, but it’s expensive. Right. So how do we manage that? Let’s try and find some similar companies, high quality companies that we can invest in that are cheaper valuations. And we were finding those in Europe. A lot of those were in the UK, but also in mainland Europe as well. So, we were already positioned more heavily towards UK and Europe, and we had less exposure to the US as we went through the second half or towards the end of last year. So, the move that we’ve seen, we were actually well positioned for because we were already tilted in that way. So, it’s encouraging to see some of those trades start to come to fruition. And if you think about global capital, everyone has been invested in the US and people have ignored Europe and the UK for such a long time. And if people finally decide that that kind of region is more investable going forward, then there’s going to be a huge reallocation of capital needed. And that’s something that doesn’t happen overnight. It takes, you know, months, quarters, years to happen. So, you know, we’re optimistic. We still need to see lots of evidence, but we’re optimistic that this can be an enduring thing.

Ryan Bridge
It’s funny because I remember you telling me about this when we recorded this podcast in an old building. We used to do that from an old set. And you were talking about investing in Europe and you think it’s undervalued. And I’m like, dude, there’s so much going on in America. Why aren’t you talking about America? Because you’re a smart guy, you know what’s coming.

Mark Riggall
Well, you know, you got to look and try and think ahead of what’s going to happen. And, you know, it was undervalued for a long time, but unless something changes, it’s going to stay undervalued. So that’s the key. So, what we’re seeing is something changing, right? It’s changing on the US side, which is forcing people to reassess the US side of the equation, but it’s changing on the European side, which makes it more investable. So, that’s the catalyst that you need to rerate the devaluations of companies.

Ryan Bridge
How do you see the war in Ukraine potentially having a ceasefire and then potentially a peace deal? How do you see that impacting the markets over there?

Mark Riggall
I think the key channel is going to be sentiment. The Ukraine war was always a kind of negative cloud in terms of sentiment that was hanging over investment in Europe. And it was obviously creating uncertainty as well. No one knew when it was going to end. So, if that is removed as a negative sentiment, then that’s just a positive and removes one of the hurdles that investors would have to investing in the region. So that’s the key channel. The other one is cost of energy. The Ukraine war did increase energy costs in Europe. And it’s part of the reason why Germany had struggled so much, because obviously there’s a huge industrial base there, which requires a lot of energy, and so higher energy costs in Europe were a problem. So, if that’s alleviated as well, it will be a benefit.

Ryan Bridge
What about the R word? A lot of people have been throwing it around in the last week. Of course, Trump gave that interview last Sunday where he refused to roll out a recession, basically. What’s your take on that?

Mark Riggall
Yeah, I mean, it’s kind of remarkable to hear a US president not talking up the stock market, not least Trump himself, who in his first term talked about the stock market as a key barometer. They’ve changed their tune. They’ve said, this is not our economy. We’ve inherited this economy. And the problems we’re seeing now are because of the Biden administration, we need to go through a period of detox. And so, they are appearing to be sanguine about the prospect of market volatility. When growth is lower, by definition, you’re closer to recession. The US economy is a huge, huge momentum juggernaut. And to get it into recession, just because sentiment is reduced and there’s uncertainty around policy, I think is a pretty tall order. And so, our base case is that actually growth is low or lower than it was, but doesn’t slip into recession. The key catalyst or risk is the tariffs themselves. So, he has talked aggressively about tariffs. But as we’ve seen with Canada and Mexico, he’s actually pulled back from some of the more really aggressive tariffs. Or they’ve been really short lived, in some cases, hours before he’s kind of gone back on what he’s doing. So, depending on what gets announced on April 2nd, that will be a key determinant of the path of the US economy going forward.

Ryan Bridge
Mark, thanks very much for coming in.

Mark Riggall
Thank you.

Ryan Bridge
Good to see you as always. That was Mark Riggall. He’s a Portfolio Manager here at Milford. Smart guy, obviously. Now next week, we’re going to take a look at how all of this volatility, all of these changes affect you, the investor. We’re going to do that with Philip Morgan Rees. He’s the head of wealth management at Milford. Don’t forget you can like, follow and subscribe this podcast wherever you want to. See you next week.

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