When President Trump stormed back into the White House, few investors expected a quiet ride. But the scale and speed of his Liberation Day tariffs sent a shockwave through global financial markets that few were prepared for.
At Calastone, we’ve tracked this volatility in real time through fund flow data across our global network, which processes hundreds of billions in transactions every month. Drawing on insights from markets including the UK, Asia, and Australia, this blog explores how investors around the world responded to one of the most geopolitically disruptive moments of the year – revealing clear patterns of caution, resilience, and recalibration.
A Confident Start Turns to Chaos
The year began with optimism. Markets were buoyed by expectations of rate cuts and a soft economic landing. Investors piled into funds at pace, particularly US equities, which continued to dominate portfolios globally.
But beneath the surface, there were signs of unease. UK investors, in particular, continued a now-familiar trend of fleeing domestic equities. Despite the UK stock market hitting record highs in early 2025, local funds saw their worst quarter on record for outflows – a stark vote of no confidence in the UK’s economic prospects.
Across Asia and Australia, however, the mood was more constructive. After a tough 2024, investors returned to the markets, adding billions to equity, bond and multi-asset funds through the first quarter. The recovery was strong, if cautious.
Liberation Day: A Market Shockwave
April changed everything. Trump’s Liberation Day tariffs – aimed squarely at China and the European Union – landed like a grenade in the middle of global markets.
Bond markets were hit hardest. Yields spiked as investors priced in a wave of inflationary pressure from disrupted supply chains and escalating trade tensions. Bond funds domiciled in the UK suffered £1.24bn in outflows – the second-worst month on record – reflecting a sharp pullback in appetite from UK-based investors.
Stock markets didn’t escape unscathed. Asia bore the brunt, with equity funds swinging from solid inflows in Q1 to sharp outflows. The sudden policy shift wiped away nearly all of the region’s fund flow momentum.
Yet paradoxically, some investors saw opportunity in the chaos. In the UK, equity funds continued to attract fresh money, but the story was almost entirely a US one. UK investors poured £1.51bn into North American equities in April, capitalising on what they hoped was a buyable dip in US markets.
Australia stood out as the bold contrarian. Rather than retreat, investors added over A$3bn to managed funds in April alone, one of the highest allocations since mid-2024. While global peers scrambled, Australians leaned into the volatility.
Recovery… With a Side of Caution
By May, the dust was settling. Trump signalled a partial retreat from his harshest tariff measures, and markets rebounded. But the scars were clear.
UK investors slowed their equity buying, particularly in US-focused funds, which saw inflows drop to their second-lowest in nearly two years. While global and European equity funds benefited from a modest pick-up, the enthusiasm of early 2025 had clearly waned.
Asia saw signs of recovery, particularly in bond markets, but equity investors remained wary. Australia, once again, proved resilient, with steady flows continuing across most asset classes.
Interestingly, UK investors – so long negative on domestic shares – began to pause their selling. Outflows from UK-focused funds halved compared to recent averages. While hardly a rush back to British equities, it marked the first tentative step toward a less negative stance.
Three Big Takeaways from the Tariff Shock
1. Bond Markets Took the Hardest Hit
Investors fled bonds in April at levels not seen since the pandemic, particularly government debt. A sharp recovery followed in May as yields became attractive again, but confidence remains fragile.
2. The US Is Not Invincible
While US equities initially benefitted from ‘buy the dip’ flows, May’s slowdown suggests investors are reconsidering their near-automatic preference for American markets. For the first time in years, there were signs of fatigue.
3. Asia’s Vulnerability and Australia’s Resilience
Asia’s exposure to China – the primary target of the tariffs – left it particularly vulnerable to the sell-off. In contrast, Australia’s surprising resilience suggests a different investor mindset, one more comfortable leaning into volatility when others flee.
What’s Next?
The Liberation Day tariffs were a harsh reminder that geopolitics is back as a primary driver of markets. While the worst of the shock appears to have passed, the after-effects are lingering, particularly in bond markets and in the cautious stance many investors are now taking toward equities.
One thing is clear: in a world where policies can shift overnight, diversification, agility, and a global perspective are more critical than ever.
