February unfolded similarly like January in that European markets once again outperformed US markets. Almost every single day president Trump threatens tariffs against various countries, then initiates or delays them, only to cancel them again the next day when other countries respond in kind with counter tariffs. This causes continuous uncertainty, which puts pressure on the markets.  On top of that he's further antagonizing decades-old allies with continuous provocations, such as his desire to make Canada the 51st state. Global alliances are shifting and new trading partnerships formed.

The Trump administration also made it quite clear that US support for Ukraine is over, going as far as demanding rights to Ukraine's minerals to the tune of half a trillion dollars and publicly mocking their leader while on a visit in the Oval Office. A »peace proposal«, negotiated by the US and Russia and without the EU and Ukraine at the negotiation table, was swiftly rejected as it essentially demanded the complete surrender of Ukraine to Russia's demands.

In response the EU, along with the UK and Ukraine, held an emergency meeting, pledging to dramatically increase defense spending in Europe as the US could no longer be considered a reliable ally. This caused shares of European defense contractors, such as Germany's Rheinmetall, UK's BAE Systems, France's Thales and others to surge by double digits.

This kind of decision making by the US president is clearly backfiring. You can't make knee-jerk tariff decisions and antagonize decades-old allies without economic repercussions. The backlash is so severe that on February 28 the Atlanta Fed revised their outlook for Q1 US GDP growth to a 1,5% contraction, down from a 2,3% expansion anticipated just a week earlier. The Atlanta Fed attributed the sudden change to the U.S. trade deficit and weaker consumer spending. It has come to the point where non-Americans are boycotting US products and investors place their bets on other markets. Elon Musk is finding this out the hard way as Tesla sales are plummeting worldwide.

US indices ended February in negative territory with the Dow Jones, S&P500 and Nasdaq Composite  losing 1,58%, 1,42% and 3,97% respectively. The dollar remained quasi unchanged against the Euro at 1,0375$/EUR. European markets on the other hand continued their gains with the DAX adding 3,77%, the CAC 2,03%, the Eurostoxx50 3,34% and UK's FTSE100 index adding 1,57%. Europe's financials sector led the gains, along with defense companies in the industrial sector. Also Slovenia's SBITOP continued its strong January performance, adding another 6,32% gain. Eurozone's January inflation slightly increased to 2,5% but further interest rate cuts by the ECB are still on the table.

The strongest market in February however was China and Hong Kong with Hong Kong's Hang Seng index gaining a solid 13,43% as it benefited from optimism about its AI capabilities following the initial release of DeepSeek’s lower-cost open-source AI model in January.

Japan's Nikkei index on the other hand fell by -6,1% due to weak performance in large-cap stocks, particularly in the technology and exporter sectors.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - February 2025