You are using an outdated browser. Please upgrade your browser to improve your experience.

Our views 02 May 2025

The Viewpoint: Can the UK re-assert its place as one of the great trading nations of the world?

5 min read

Investment strategy doesn’t have to be complex. Indeed, successful strategies are often very simple. Each decade has a primary driver which, if identified, becomes the tailwind for multiple years of performance.

In the 1990s it was technology and the internet; in the 2000s China and commodities; in the 2010s it was low interest rates, cloud computing and technology. The latter effects ended at the start of 2022 and since there has been an absence of a dominant trend.

In 2022, energy and defence stocks performed well but little else did. In 2023 and 2024, technology made a comeback with Artificial Intelligence (AI). In 2025, financials have been the best performing area of global equity markets. This continued change in market leadership, and repeated pivoting between value and growth year by year, has made it harder for active managers to find a consistently rich seam of outperformance. Based on the events so far this year, a dominant tailwind is yet to reappear.

We’ve had three big events so far: Deepseek, European fiscal change and trade wars. The first created a rotation out of technology into the second, Europe, which has then been challenged by concerns over a recession caused by tariff uncertainty.

We have noticed the same narrative of volatility and inconsistency from the corporate sector. Most companies in the 2010s were analysing why growth was changing within a narrow range and understanding modest variations in performance. After Covid, and with all the other events of the last few years, volatility around growth has been significantly higher. It has been much harder running both investment portfolios and businesses more recently.

This won’t last forever though, and a new dominant trend will appear for investors. Those who spot it early and positions themselves accordingly will have an advantage. What could it be? An emerging market boom? A stronger European stock market due to a shift in fiscal policy? A renaissance of the UK (more of this later)? The end of US exceptionalism? All are realistic possibilities and worthy of consideration.

Deal or no deal

Markets tend to obsess about one thing at once. For now, that obsession is trade wars. Since 2 April when, as the joke goes, investors were liberated from their profits for the year, daily performance has been driven by social media postings and news conferences from the White House.

Markets tend to obsess about one thing at once. For now, that obsession is trade wars.

After a collapse in equity and bond prices, Donald Trump announced a 90-day suspension of tariffs beyond 10% on all countries other than China. This has resulted in a material recovery in asset prices to the point where their fall since liberation day is relatively immaterial. Given the scale of what is occurring, why is this?

There is an increasing view that China may be ‘winning’ the trade war with the US, and that Trump will have to find a way to back down. There are two reasons for this. First, CEOs of major US retailers such as Walmart have warned that shelves in their stores will start to become empty within the next two months if tariffs are not dropped. Secondly, the US defence industry has made it clear it cannot manufacture key weaponry without certain materials (rare earths for example) which China has now embargoed. Unhappy consumers and heightened national security risks are not a good combination.

Of course, China will be suffering too. It needs key US products such as semiconductors to manufacture goods. We are therefore in the uncomfortable situation of planning for a binary outcome: deal or no deal.

Under the ‘deal’ scenario, a de-escalation of tariffs claimed as some sort of victory would convince investors this has all been an unfortunate incident and we can return to something akin to the pre- 2 April world. Under the ‘no deal’ scenario, economic and social turmoil would surely follow and could have a major impact on investment markets. Only time will reveal which scenario is correct, however we would expect the prospect of social and economic unrest to have a major influence on the outcome.

Great Britain

For those living and investing in the UK it hasn’t felt particularly great. Before Brexit the UK was the fastest growing economy in Europe. Since Brexit it has been one of the worst. UK equities have seen persistent outflows, with Q1 this year being a record. Much of this is self-inflicted; the UK and its stock market have lacked a cohesive narrative other than it being ‘cheap’. In investing, being cheap supports the investment case, but it rarely is the investment case.

The UK consists of Great Britain and Northern Ireland. The former was originally named so due to the size of the island we sit on, rather than any delusions of grandeur. It did however become the world’s superpower on the back of creating a sea-based empire and effectively arbitraging trade flows between the major economic regions of the world. Our competitive advantages have always been geographical location, language, rule of law, and its openness. 

Whilst clearly any delusions of being a global superpower have long gone, there is for the first time the beginnings of a more credible narrative for the UK if it can reform its role as a super-connector between the major economic regions Asia, North America and Europe.

The UK is one of the few countries in the world which has a trade deficit with the US – we buy more from the US than they buy from us. As such it is not in the firing line for tariffs in the way other countries are. I think that a favourable outcome in trade negotiations is much more likely than for other regions. Equally British diplomacy, also a historic competitive advantage, has so far allowed it to remain unaligned to any other economic region. It is the unaligned countries, rather than those who need to pick a side in trade wars, which stand to benefit from the economic fragmentation of the world which we may now be seeing.

The UK is one of the few countries in the world which has a trade deficit with the US.

It’s also possible that the UK uses current circumstances to attempt to renegotiate trade access to the European Union. Indeed, recent reports have confirmed this has happened. It is a low probability this will end in the re-joining of the EU, but there is a chance the terms of the current arrangements, which have impacted growth negatively, can be improved. 

If Great Britain, as part of the UK, can re-assert its place as one of the great trading islands of the world – along with Hong Kong and Singapore for example – and reduce some of the impediments it has created to its own growth, then it would not just be a cheap equity market, but one with a compelling narrative. It would also be a credible alternative for investors to a more challenged US equity market narrative, where capital may exit over time.

Great Britain hasn’t been great for some time. The United Kingdom hasn’t been united. Now at last it may have an opportunity to create a more positive future.

 

For professional investors only.  This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.