WeeklyWatch – Could Asia help investors weather US markets?

3rd June 2025

Stock Take

Tariff twists and turns

Unfortunately, the trend of market uncertainty continues. Among the major news of the week was the US Court of International Trade’s decision to block Trump’s upcoming tariffs. The global markets welcomed this news and subsequently rallied. But less than 24 hours later, the tariff ban was paused by the US appeal court “until further notice”.

Despite the upheaval, the US S&P 500 still managed to record its best May in 30 years, indicating that Wall Street predicts that some relief on tariffs is on its way – but this can’t be certain. If the tariffs are imposed in full, or increased, there will be further upheaval for global markets, including the US.

As US markets continue to rise and US equities remain relatively expensive, could it be time for investors to turn their attention to further afield – perhaps towards Asian markets?

Is Asia a safer investment option?

Volatility is no stranger to the Asian markets either, evident through the ever-changing nature of the trade talks that are taking place between the US and China. Weeks after agreeing on tariffs, the relationship has broken down once again, leading President Trump to accuse China of “violating” the trade deal that was agreed on.

In the previous week, US Treasury Secretary Scott Bessent described trade talks between the two nations as “a bit stalled”. Both countries have been unable to agree on issues, including the production of chips and issuing visas. Additionally, there were further reports that the US are looking to put more restrictions on Chinese tech companies.

Despite this, there are still lots of investor opportunities for those looking to diversify or find better value, in the view of St. James’s Place Head of Investment Advisory, Asia & Middle East, Martin Hennecke. He looks to Jensen Huang, the CEO of Nvidia, and his talk of ‘formidable’ competition from China in the past week and China’s strong economic fundamentals:

“China’s industrial profit growth has been more resilient than expected, coming in at 3% year-on-year for the month of April. This is despite the tariff fallout.”

Even though consumer spending remains fairly weak, Chinese household bank deposits have seen a $10.6 trillion net increase over the past five years. This suggests that there’s a strong potential for a recovery in spending once spending confidence is stabilised.

Hennecke continues:

“If investors are overweight on US equities, and technology in particular, the recent strong rebound in US markets might be a good second chance to broaden out across other relatively discounted markets regionally.

“Investors could also think about different investment styles, such as balancing growth with value.”

What about Japan?

Japan has frequently featured in the news as of late. After struggling for decades with deflation, there’s been a sharp rise in inflation. In April, core inflation hit 3.5% in comparison to the previous year – the fastest rate of growth in two years.

This puts pressure on the government to increase interest rates and on Japanese government bonds, where there’s been a sharp increase in yields. Higher yields on bonds means that there are bigger borrowing costs for the government as a result, which could limit the Bank of Japan’s ability to increase interest as required. It can also mean that Japanese investors could pull money that’s held in the US to invest domestically instead. US markets could therefore see a knock-on effect, particularly in the tech sector, where over the last decade, Japan has been the largest foreign direct investor.

Japanese investors tend to be cash-heavy, but fears surrounding inflation rates exceeding deposit rates (effectively negative real interest rates) and the subsequent impact on purchasing power could result in a shift to equities.

Hennecke notes:

“As the Bank of Japan’s interest rate remains far lower than inflation, we might see Japanese households choosing to redeploy their large deposit holdings into other assets, possibly including domestic equities. This may help protect against inflation.”

There are further reasons to be positive about Japan. The Nikkei 225 rose by 2.2% last week, largely influenced by the optimism that Japan will secure a beneficial trade deal with the US.

The European and UK response

After the US Court of International Trade’s ruling on US tariffs, the markets unsurprisingly had a very positive response. The MSCI Europe ex UK rose by 0.7% last week.

Unlike other countries that have been dominated by challenging inflation figures, this narrative has been less prevalent across the continent. Figures showed slower inflation across numerous key European nations, including France, Spain and Italy.

In the UK, the FTSE 100 and FTSE 250 increased by 0.6% and 1.5% respectively.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Past performance is not indicative of future performance.

Wealth Check 

The seven-year rule explained

Passing on large sums to your loved ones while you’re still alive is both a practical and tax-smart option for inter-generational money flow. Often called a ‘living inheritance’, it can be a savvy choice for those wishing to give the next generation a head start.

But you must remember that if you die within seven years of making a substantial gift, the value of the gift will be counted as part of your estate (unless it’s covered by an inheritance tax (IHT) exemption). This money could be liable for IHT if there’s not a sufficient nil-rate band available on death which can protect the gift.

What you need to know:

  1. Seven-year giving rule

The Autumn Budget announced that there will be changes to pensions and could see taxpayers having to pay an increased tax bill. This has meant that more people are looking to pass on their money or assets during their lifetime.

The seven-year rule means that you’ll need to live for seven years from the date of the gift; if not, the beneficiaries may have to return some of it to HMRC.

  1. What’s considered a gift?

A gift is defined as anything you give away, according to HMRC, and can include:

  • Money
  • Property or land
  • Stocks and shares listed on the London Stock Exchange
  • Household and personal goods
  • Furniture
  • Jewellery
  • Antiques
  • Unlisted shares (if you’ve held them for less than two years before your death)

These gifts are called Potentially Exempt Transfers or PETs (unless they fall under an IHT exemption, such as the £3,000 annual exemption). Don’t worry, it’s not as complicated as it sounds! What it means is that your gift is ‘potentially exempt’ from IHT – it’s an outright gift exchanged between two people. IHT is only paid on a PET if you don’t live seven years from the date of the gift and it’s not covered by your available nil-rate band when you pass away.

Gifts worth over £3,000 can be considered a Chargeable Lifetime Transfer (CLT). A CLT is usually a gift made into a discretionary trust, where IHT is paid upfront – at 20% on any amount over the nil-rate band (currently £325,000 per person).

  1. The ‘tapering off’ rule

Good news! The rate of IHT on gifts made above the available nil-rate band tapers off on a sliding scale, known as taper relief.

How does it work?

  • If you die 3 to 4 years after gifting, the rate of IHT on your gift reduces to 32%
  • If you die 4 to 5 years after gifting, the rate of IHT reduces to 24%
  • If you die 5 to 6 years after gifting, the rate of IHT reduces to 16%
  • If you die 6 to 7 years after gifting, the rate of IHT on your gift to 8%

If you live for seven years, your gift is IHT tax-free.

  1. Can gifts be protected from IHT?

Yes, they can. You can protect any gift amount surpassing your available nil-rate band by taking out a ‘gift inter vivos policy’ – a form of life insurance which works to protect the recipient from IHT if you don’t live for seven years. These policies are created to mirror the tapering effect of your liability – e.g. if you die in the sixth year, it’ll pay out the exact amount to cover any tax that’s due.

You can also protect gifts that are made within the available nil-rate band by using a level term assurance policy. The term is arranged to match the period until gift falls outside of the estate – if the gift had just been made, this would be seven years.

  1. What other gifts can be made that are tax-free?

Tax-exempt gifts of up to £3,000 every tax year can be made. You can split your annual allowance between numerous people, or you can give it all to one person. When you make your first gift, you can roll over the gifting allowance from the last year, meaning that you can give away £6,000. Gifts under £250 are tax-free and gifts to civil partners or spouses are automatically tax-exempt.

Top tip: Keep a written record of each and every gift you make – if you can’t prove when you made a gift, for example, you may end up paying some IHT regardless.

Planning ahead

If you make a gift in good time, you can make a big difference to your family’s financial well-being in the here and now – and in their future.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

In The Picture

All that glitters is gold…or is it? There’s been a large increase in gold prices while investors seek out a safe haven as the geopolitical noise continues. Sentiment hugely influences markets, but it shouldn’t be part of your investment decisions. These sharp rises in gold prices are reflective of the effect of short-term noise on markets and are no guarantee of future returns. Instead, portfolio resilience is more effective when opting for a long-term approach and building a diversified portfolio.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies.

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© S&P Dow Jones LLC 2025; all rights reserved.

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

 

SJP Approved 02/06/2025