April 07, 2025

Trump's Trade War: Chaos Unleashed

Market Commentary

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Asian stock markets experienced a significant downturn yesterday following U.S. President Donald Trump's announcement of extensive tariff hikes.

The Hang Seng Index plummeted by 13.2%, marking its steepest decline since the 1997 Asian financial crisis, while the Shanghai Composite dropped 7.3%. Other major Asian indices also suffered substantial losses of 7% declines and above.

These market reactions reflect escalating concerns over global trade tensions and their potential impact on the global economy.

Regional Indices Performance on April 7th

Treasury Secretary Scott Bessent stated that over 50 countries have initiated talks with the U.S. to reduce trade barriers, tariffs, and currency manipulation, emphasizing that these discussions would take time and that the tariff strategy was designed to maximize negotiation leverage.

Additionally, Arthur Laffer, an informal economic advisor to President Trump, described the tariff threats as a negotiating tactic, asserting that the President is using trade as a tool to achieve other policy objectives.

These statements suggest that the administration views tariffs not as an end but as a means to secure broader economic and policy concessions from other nations.

In Trump’s view, a strong U.S. dollar makes American goods more expensive abroad and foreign goods cheaper in the U.S. This hurts U.S. manufacturers by making exports less competitive and boosts imports, contributing to deindustrialization as factories close and jobs move overseas.

Weighted USD Value vs US Manufacturing Jobs

In our view, there's a good chance that the damage to Indonesia equity market may have exceeded the actual impact, even if the import tariffs announced by the Trump administration were fully implemented—especially considering that the tariffs may merely serve as leverage for the U.S. to achieve its main goal.

Regardless, panic has already spread, the sell-off in equity markets has occurred, and we believe the JCI will follow suit after the Eid Al-Fitr holiday.

A steep decline in the JCI seems inevitable in our view, even if it eventually bounces back later in the day.

Therefore, we suggest maintaining a neutral stance on Indonesian equities, given the JCI's extremely undemanding valuation, while the impending price dip feels almost as certain as death itself.

JCI Trailing PE Band

We do not recommend buying the dip, as even the best analysts or investors are unlikely to accurately predict the bottom.

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