Steering a path through global turbulence

Global equity markets have demonstrated a degree of resilience in the first half of 2025 in the face of some significant challenges. To date, markets have shrugged off tariff concerns, geopolitical tensions, and an uncertain economic environment. However, this optimism may not last indefinitely, as the implications of recent policymaking become clearer. It is an environment in which investors need to tread carefully and diversify effectively.

The backdrop for global stock markets remains highly complex and uncertain. Although many indices have posted gains for the year to date, the journey so far has been far from smooth, marked by intermittent bouts of volatility, shifting macroeconomic signals, and persistent geopolitical tensions. It is difficult to shake off a sense of complacency in parts of the market, which appear barely to acknowledge the various risks.

In particular, the US remains a source of uncertainty. The most immediate questions are around tariffs. Trade relations also remain fragile. While some progress has been made on bilateral agreements, tariff implementation is still capricious and a tool for political point-scoring. The potential for renewed trade disputes – particularly between major economies – could reintroduce inflationary pressures and complicate the policy outlook for central banks.

Although tariffs have not yet shown up significantly in the inflation data, it remains a risk. Front-loading has clouded the data and companies are starting to report pricing pressures. Walmart, for example, warned that US tariffs are driving up its costs and squeezing margins. It said it would ultimately have to raise prices to offset these costs. While markets appear to have assumed that tariffs are a non-event, companies are telling us otherwise.

There are also questions over the fiscal trajectory of the United States. Persistent deficits and rising debt levels may eventually lead to higher long-term interest rates or renewed political brinkmanship, both of which could unsettle markets. The ‘One Big Beautiful Bill’ appears likely to raise the deficit still further, while attempts to cut spending have proved largely unsuccessful.

The impact of index concentration

These issues would be less pressing for equity investors had the US not become such a dominant part of global indices in recent years. The FTSE All-World Index, the reference index for Murray International Trust (MINT) until 1st July 2025, has 64% in the US. Nvidia now commands a market capitalisation of over $4 trillion, larger than the whole of the UK market. Index-led investors are highly exposed if the US wobbles. The US economy has shown remarkable resilience, but these are risks that should be acknowledged and reflected in pricing. Parts of the global stock market, and the US in particular, look priced exclusively for an upbeat outcome that – we believe – is far from inevitable.

We have structured the MINT portfolio to be more attuned to these risks. Our weighting in the US is less than half that of the FTSE All-World Index, at 29.5%, and we largely stay clear of the AI-focused mega caps which pay no or very low dividends. That is not to say that we don’t believe that AI is a strong theme, but we prefer to play it through alternative shares such as TSMC, Broadcom or BE Semiconductor which also contribute on the income side. We have also been diversifying our technology exposure more recently, taking a position in Indian IT Service company, Infosys.

We also believe diversification is vitally important in an uncertain environment and the MINT portfolio has no significant sector skews. Technology is the largest weighting at 19%, but the portfolio also has meaningful weightings in financial services, healthcare and consumer defensive companies. Having a balance of sectors, and diverse regional exposure should help defend our investors’ capital.

Income resilience

Equally, the protective power of income has often been overlooked in the all-out pursuit of growth. We believe income may become a more desirable attribute as investors look for predictable returns in an uncertain climate. In particular, the power of growing dividends to protect investors against inflation shouldn’t be underestimated. Higher inflation remains a risk across most major markets.

In contrast to the volatility in share prices, the income picture, both in terms of the MINT portfolio and more generally, remains stable. In the first half of 2025, the portfolio's total income increased by £6 million to £52 million, up 13% compared to the first half of last year. Of the 25 companies in the portfolio that have declared full year dividend intentions, 22 increased their full-year dividend distributions, with TSMC, Telkom Indonesia and Siemens increasing their dividends by 27%, 19% and 11% respectively. This helps give ballast to the portfolio and may explain why the portfolio has shown robustness during the bouts of volatility that we have experienced this year.

The resilience is also a function of our approach. We are clear-sighted in our analysis of companies, aiming not to get caught up in the ‘noise’ of markets. We believe this will serve us well should markets retreat from their rose-tinted view of the global economy to a more realistic assessment of the risks.

Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.

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Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG. The company is authorised and regulated by the Financial Conduct Authority in the UK.

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