World’s biggest economies are at war again—here’s how to keep your investments battle-ready

As the US slaps a 125% tariff on Chinese imports and Beijing retaliates by banning American movies, the world’s two largest economies are entangled in a trade war that echoes the chaos of the 2013 taper tantrum. 

Back then, it was interest rate jitters; today, it’s tariff turmoil. But once again, emerging markets—and investor nerves—are paying the price.

The ongoing trade war is growing more intense, raising the risk of global economic fallout. As US and China impose tit-for-tat tariffs and protectionist policies, key indicators like inflation, interest rates, currency values, and GDP growth are likely to be hit. For investors, this is a reminder that markets are unpredictable—something Howard Marks captured well when he said, “You can’t predict, you can prepare." 

Rather than trying to time the market or react in panic, investors should focus on smart asset allocation, maintaining liquidity, and holding quality stocks through volatility. With this in mind, here’s a simple seven-step approach to turn today’s uncertainty into tomorrow’s opportunity.

Also read: Three stocks to watch if Apple shifts manufacturing to India from China, dodging US tariffs

Do not sell in panic

Trump’s tariffs have clearly rattled markets—but panic selling isn’t the answer. What matters now is whether the market correction aligns with real damage to corporate fundamentals. 

Dumping stocks in fear may feel safe, but it often leads to costly mistakes. You risk letting go of future winners and weakening your long-term portfolio. Instead of reacting emotionally or following alarmist voices, stay focused on fundamentals. 

Review your portfolio

In times of market crisis, it is most important to review your portfolio. Both in terms of overall allocation to stocks and the quality of stocks.

Weed out stocks that lack strong cash flows, healthy return ratios, consistent growth, or solid profitability.

Be selective

The tariff-led market correction may continue, with some sectors taking a bigger hit. That’s why stock selection matters more than ever. 

Focus on companies with strong fundamentals and reliable management. Resist the temptation of cheap valuations—only invest in businesses built to weather long downturns.

Consider dividend bargains

Attractive valuations can go a long way in compounding your returns from great stocks. But don't forget to count the dividend yields.

Also read: Street preps for a party, but it's time to stay sober

In fact, stocks that offer steady and attractive dividend yields over long periods are the ones to hunt for, during such market corrections.

Don't sideline smallcaps

Staying conservative in uncertain times is wise, but ignoring smallcaps entirely could mean missing out. 

Watch the Smallcap to Sensex ratio closely—when it dips below the long-term average of 0.45, it often signals a good entry point for high-quality smallcap stocks.

Have a watchlist

The best quality businesses are rarely available at reasonable valuations except during crisis-led deep market crashes.

Having a watchlist of such stocks can help act on them instantly in the event of a market crash, thus turning the crisis into an opportunity.

Here are few watchlists on the Equitymaster Screener.

Allocate in a deferred manner

No matter how confident you are in a business, it's wise to build your stock positions gradually. Use broader market indicators like Sensex valuations to guide your allocation. 

Start with partial exposure to high-quality but pricey stocks, and increase your stake if prices correct further.

Happy investing!

Also read: Pharma companies on edge over Trump tariff tantrum: ‘Will he, won’t he?’

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com