Swiss Pictet Wealth Management Executive: The period of maximum impact from Trump's tariffs may have passed; in the geopolitical shifts, cash is king

Ask AI · Why is cash surpassing bonds as the preferred safe haven in the current environment?

At the beginning of this year, major institutions once expected a bright performance across multiple assets globally. But then, the rise of disruptive AI trading, the unresolved issues in the previously troubled private credit market, and new geopolitical conflicts have all emerged. The global market environment has undergone a dramatic change.

For investors, will this conflict be a short-term market impact like past geopolitical conflicts, or will it cause long-term, structural changes to investment logic? Do investors need to readjust their portfolios accordingly? Why are some historical lessons no longer effective in this conflict? Are emerging market assets and gold, which were hot investments earlier this year, still worth investing in? How should we interpret the performance of U.S. stocks and U.S. bonds? To address these questions, Yicai News interviewed Alexandre Tavazzi, Chief Investment Officer’s Office and Head of Macroeconomic Research at Pictet Wealth Management in Switzerland.

How it affects the global economy and central bank policies

After this Middle East conflict, energy shocks are the most immediate threat. Oil prices previously surged to nearly $120 per barrel and are now hovering around $100. Tavazzi admitted this is a very tricky issue, “because the reality is we don’t know when the Strait of Hormuz will reopen. Looking at supply and demand in the oil market, before the conflict, daily oil supply was oversupplied by about 4 million barrels. Based on this, oil prices should be around $60, but due to the conflict, there is a high premium, and it’s not limited to oil—natural gas is the same. Moreover, energy strategic reserves vary by country, and not all countries have sufficient reserves.”

“Currently, the market expects oil prices to fall sharply in three months, but I doubt that,” he said. “Because many factories have shut down due to the conflict. Even if they restart today, it will take months to fully recover. So, ultimately, oil prices will return to some normal level, but this will be a new normal—around $70 to $80 per barrel, not the pre-conflict $60.”

Rising oil prices have also pushed up inflation expectations, leading markets to cut back on Federal Reserve rate cuts. Tavazzi pointed out that the initial impact of the Middle East conflict might be a specific consequence—inflation. But in the longer term, it will negatively impact overall economic growth because it causes supply constraints. In other words, rising energy prices are not driven by increased demand but by shortages. If the conflict persists, oil prices rising combined with credit issues will be quite negative for the economy.

Therefore, he said, markets initially expect smaller rate cuts from global central banks, but the longer this situation lasts, the greater the negative impact on the economic cycle. This means that eventually, central banks will have to cut rates further, perhaps not in 2026, but in 2027.

Additionally, regarding the market’s growing concern about whether the U.S. economy might fall into stagflation, he admitted it might happen. “Ultimately, demand contraction is inevitable. From a consumer perspective, if restrictions increase and disposable income decreases, they will find it hard to continue spending. From a business perspective, especially considering credit market issues, if small and medium-sized enterprises cannot access private credit, they will have to make decisions like layoffs and cost cuts, which will negatively impact the economy.” So he said, “The rise in energy prices caused by the conflict not only pushes up inflation but, if consumer demand shrinks as a result, will also have a negative impact on the economy.”

Markets are also worried that prolonged conflict could cause structural damage to the semiconductor industry. Tavazzi agreed, “This is indeed a big problem. In terms of economic consequences, inflation driven by oil is important, but in recent years, dependence on oil has decreased, while reliance on semiconductors has increased. Therefore, the conflict could have more destructive consequences.”

The key question remains: how long will this situation last? He believes that reopening the Strait of Hormuz as soon as possible aligns with everyone’s interests. “From a political standpoint, if energy prices stay high, it will be difficult for Trump to win the midterm elections in November.”

He added that, for now, the Asia-Pacific economies are relatively manageable under high energy prices. But some countries are heavily dependent on energy imports—not just oil, but also fertilizers. For countries where agriculture is a large part of the economy, fertilizer supply is a big issue. The high proportion of fertilizer and agricultural product imports in total energy demand could impact some nations.

Shifting toward investment in real assets and tangible assets

The global markets are currently facing geopolitical conflicts, AI pressures, and credit market deterioration simultaneously. Tavazzi said that in this challenging environment, diversification is crucial, and over-investing in a single asset is risky. From a safe-haven perspective, cash rather than bonds is a more suitable choice.

“Under credit market deterioration, high-yield bonds are under pressure because 45% of leveraged loan companies are listed in the high-yield bond market,” he said. “At the same time, he noted, “In the current environment, defensive strategies are appropriate, seeking an absolute safe-haven asset. Cash is the best safe-haven asset at the moment. Holding cash allows opportunities to re-enter the market when conditions improve.”

Furthermore, Tavazzi emphasized that, in the longer term, the world is moving away from the past model of unasset or light-asset businesses generating the highest returns in the stock market. “These companies basically have no factories or physical assets. Considering the geopolitical landscape forming now, we need to invest in companies that supply key raw materials and supplies, which are critical for countries and businesses to develop and adapt in today’s global environment. These are tangible assets, not something that central banks can print away. Therefore, investors need to readjust their portfolios, focusing on countries and companies with tangible assets available for investment.”

Specifically, he said, from a corporate perspective, these assets could be industrial companies, heavy machinery firms, materials companies, and mining firms. From a national perspective, many tangible assets are concentrated in emerging markets. In fact, this trend will continue over the next 5–10 years, shaping the future market landscape.

While these three factors resonate and influence the global markets, Tavazzi believes that the impact of tariffs, which have been influencing markets last year, may have already passed its most significant phase.

He said that earlier, the U.S. Supreme Court ruled that the Trump-era International Emergency Economic Powers Act (IEEPA) would no longer apply. As a result, U.S. tariffs on some countries have decreased, but not all. “The U.S. still needs to negotiate final agreements with certain countries. Although the final terms are not yet out, these trade policies have taken effect and will continue because the Trump administration cannot afford to lose tariff revenue. However, these policies may be less significant in 2026 than in 2025,” he analyzed. “So I believe the impact of tariffs on the global economy mainly occurred in 2025, not 2026. The biggest negative impact on the global economic cycle from tariffs has already passed and will not continue. Companies have adjusted their pricing and incorporated some costs into their structures. Some may still want to pass higher prices to consumers, but the real shock happened last year. This year, the focus is naturally on the Middle East and energy prices, with tariffs being less prominent.”

Additionally, markets are paying close attention to whether the conflict has affected the structural bull market in precious metals. Earlier this year, many analysts believed gold, silver, and other precious metals were entering a structural bull cycle. But during this Middle East conflict, gold prices not only failed to surge as they did during past geopolitical tensions but also declined sharply.

Tavazzi said that late last year, the precious metals market experienced some exaggerated movements, so many might have bought gold then. But as assets became turbulent due to the Middle East conflict and uncertainty about its duration, investors seeking liquidity often sold profitable stocks rather than losing ones. Similarly, gold was a popular component of many portfolios at that time, so investors started selling gold holdings that were still profitable, causing gold prices to plummet.

However, considering future directions and current circumstances, he emphasized that many governments are burdened with heavy debt and fiscal deficits. For example, the U.S. government today shows no political will to reduce deficits. On the contrary, Trump’s “One Big Beautiful Bill” will worsen the U.S. fiscal situation. “At the same time, we doubt how much revenue tariffs can generate. Moreover, the U.S. Department of Defense is requesting an additional $50 billion for war-related expenses. All signs point to further expanding deficits. The question is, how to respond and address these deficits? The U.S. will not default, but to hedge against the huge fiscal deficit pressure, they will print大量 money to pay off debt, which will sacrifice the value of paper currency,” he said.

“This is not just a U.S. issue but a problem faced by many economies worldwide. Many fiat currencies will be questioned in value. That’s why tangible assets like gold, which cannot be printed by any central bank, are becoming more attractive over time,” he added. “Although short-term gold prices will be affected by the Middle East conflict, investors should ensure their portfolios are not overly reliant on central bank monetary policies during high fiscal deficits. Gold still has value and may even increase depending on market conditions.”

Regarding how to respond to increased volatility in gold, silver, and other precious metals in the short term, Tavazzi said that heightened volatility is due to smaller market size and lower liquidity. Since gold prices are more volatile now, the best approach is to set target allocation ratios to allow these assets to serve as a hedge.