It has been a volatile week for the stock market as President Trump unleashed his “Liberation Day” raft of tariffs on more than 180 countries.
Just last week, the Straits Times Index (SGX: ^STI), or STI, plunged 7.5% in a brutal sell-off as investors digested the news.
However, in a stunning about-turn, Trump now announced a 90-day pause in the implementation of these tariffs and also announced a substantially lower reciprocal tariff rate of 10%.
However, the US kept up the pressure on China and said that it would raise tariffs there from 104% to 125%.
There could be more twists and turns in this saga as the situation remains fluid.
As an investor, how should you position your portfolio to guard against the wild swings?
Uncertainty reigns even as markets rebound
With this sudden announcement, the NASDAQ Composite Index posted its largest one-day gain since January 2001 of 12.6% while the bellwether S&P 500 Index leapt 9.5% for its third-largest gain since World War II.
Hong Kong rallied more than 4% in early trade while Tokyo’s Nikkei 225 Index soared more than 8%.
Taiwan was even more volatile, registering its best day ever with a 9.3% surge after recording its worst-ever fall of 9.7% just a few days ago.
The STI also rallied, shooting up 6.6% by 9:08 a.m. yesterday (10 April), although it was still substantially below the level it traded at before Liberation Day.
Several Singapore blue-chip names made use of the decline to buy back their shares.
DBS Group (SGX: D05) bought back and cancelled a million shares on Monday, 500,000 shares on Tuesday, and another 700,000 on Wednesday, for a total of 2.2 million shares.
Not to be outdone, United Overseas Bank (SGX: U11) bought back a total of 250,000 shares over the three days and cancelled half of them while retaining the rest as treasury shares.
Singapore Exchange (SGX: S68), Singapore Technologies Engineering (SGX: S63), Singapore Airlines (SGX: C6L), and CapitaLand Investment Limited (SGX: 9CI) also carried out share buybacks amid the turmoil.
Tariffs as a negotiation tactic
The sudden U-turn has caught investors by surprise, but a US trade representative told a senate panel that the goal of these sweeping tariffs is to negotiate a series of trade deals.
It has become increasingly apparent that Trump is using tariffs as a negotiation tool to compel other nations to discuss trading terms with the US.
The situation remains fluid at this point and more tariff developments could turn in the coming days, weeks, and months.
Trump has also threatened to impose tariffs on pharmaceuticals when this sector had been exempted before.
There could be many more rounds of trade talks before the situation stabilises, and the markets could continue to be very volatile in the short term.
Blue-chips for stability
During periods of extreme volatility, blue-chip stocks are a great way to buffer your portfolio.
These companies have a long track record of weathering different economic situations and can provide you with a good night’s sleep.
Several examples include the Singapore Exchange, which is the sole stock exchange operator in Singapore, and DBS Group, Singapore’s largest bank.
Though their share prices may fluctuate in the short term, their business should be resilient enough to withstand the tariff headwinds.
Dividend-paying stocks as a buffer
Apart from blue-chip companies, you can also park some of your money in reliable, dividend-paying stocks.
Look out for companies with a long history of paying out dividends as this implies that they have strong balance sheets and can generate consistent free cash flow.
Some examples include engineering conglomerate Boustead Singapore (SGX: F9D), healthcare conglomerate Haw Par Corporation (SGX: H02), and vehicle inspection company VICOM (SGX: WJP).
REITs are also a reliable dividend-paying asset class.
Parkway Life REIT (SGX: C2PU) and CapitaLand Integrated Commercial Trust (SGX: C38U) are two examples of solid REITs that have increased their payouts despite persistent headwinds.
These businesses and REITs have long operating histories and have been paying out dividends for many years, making them potential candidates for an all-weather portfolio.
Get Smart: Stay alert and monitor the situation
Volatility looks here to stay.
As an investor, your job is to control your emotions and steel yourself for further volatility as Trump’s tariffs plan could just be the beginning.
You can position your portfolio to weather this volatility by loading up on blue-chip stocks and reliable dividend-paying companies.
The volatility may also open up great opportunities for buying these stocks or REITs for the long term.
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Disclosure: Royston Yang owns shares of DBS Group, Boustead Singapore, VICOM and Singapore Exchange.
