The stock market experienced significant volatility last week due to escalating trade tensions following President Donald Trump’s announcement of new tariffs aimed at reducing the US trade deficit. These tariffs were implemented on April 2, 2025 – a day referred to as « Liberation Day » – leading to widespread market reactions across developed markets globally.

The technology sector for both large and small caps were among the sectors most adversely affected during this period. Technology stocks faced substantial declines, with companies like Tesla and Nvidia experiencing drops of 36% and nearly 20% respectively, over a two-day span. Industrials and consumer discretionary also suffered notable losses, as companies within these industries are often sensitive to trade policies and global economic conditions.

In contrast, defensive sectors such as consumer staples, healthcare and utilities showed resilience. These sectors tend to be less sensitive to economic cycles and trade fluctuations, providing a buffer during periods of market volatility.

The new US tariffs could reduce global GDP growth by 50 bps, with a 100-150 bp drag on US growth, a 60 bp drag on Asian growth and a 40-60 bp drag on Euro-area growth. It is expected the US administration will negotiate country-specific comprehensive packages involving trade, defense, energy and immigration. The aim is de-escalation in the global trade war over the coming weeks and months, though negotiations with China will likely prove difficult, given the geopolitical tensions between the two countries.

Global Alpha will continue to monitor the effect of tariffs on the companies it is invested in. From supply chain to end consumer, the ripple effects are multi-factor dependent. Can production relocate? Is it a service or a good?  Where are competitors located? Can the buyers absorb the price increase? And ultimately, what is the demand destruction?

The length of tariffs is also unknown as we recently saw with Vietnam which offered to remove tariffs less than 48 hours post Liberation Day. Nike re-couped half its losses on the announcement.

Presently, our largest exposure to tariffs is the aluminum company Alcoa Corp. (AA US) with 50% of its Canadian production destined to the United States with no real US substitution. The company estimates that a car price tag will increase by $1200 from aluminum alone. If tariffs persist, on-shoring plans could re-surge.

On-shoring will continue to accelerate whether tariff induced or not. Political tensions are only increasing and productivity will continue to rise and automate. In fact, we may be on the verge of one of the largest productivity gains in recent times through the realization of a theme society has dreamt of for a long time: humanoid robotics.

In our discussion with companies, we can start seeing mid- to near-term plans to use humanoid robots. Tesla’s development plans for the Optimus humanoid robot begins with progression of human-superior autonomous driving by Q4 2025 (sensorial decision making). Following that step would be the replication of that technology in humanoid robots. The first launches of the Optimus Robot in the logistics sector are planned for Q1 2026. With this plan, it is easy to imagine Mr. Musk telling President Trump that his industrial labour shortages will be solved in the mid-to-long term.

The global humanoid robot market size was valued at USD 2.4 billion in 2023 and is projected to grow from USD 3.3 billion in 2024 to USD 66.0 billion by 2032, exhibiting a CAGR of 45.5% during the forecast period. Asia Pacific dominated the humanoid robot market with a share of 42.0% in 2023.

The wheel-drive version (versus biped) segment held the highest market share of 65.6% in 2024 and an even higher market share in real-use cases; the biped is still in its infancy when addressing performance.

In 2022, Elon Musk suggested that the Optimus robot could eventually be priced at around $20,000 to $30,000 per unit when mass production begins. This price range is based on Musk’s vision for the robot to be affordable, allowing widespread adoption and possibly replacing some human labour in industries like manufacturing, logistics and even home use.

The Optimus robot is designed to resemble a human in both appearance and movement. It stands 5’8” tall (around 173 cm) and weighs about 125 lbs (approximately 57 kg).

Global Alpha is a shareholder of GXO Logistics Inc. (GXO US)

GXO is a global leader in supply chain solutions and logistics services. The company focuses on providing advanced logistics capabilities for customers across a variety of industries, including retail, e-commerce, consumer goods, automotive and technology. GXO operates with a strong emphasis on innovation and technology, aiming to enhance efficiency, optimize operations and improve customer service through automation, robotics and artificial intelligence.

Today, GXO is a leader in the implementation of traditional robots like autonomous mobile robots (AMRs) or robotic arms. However, the company is likely to continue exploring humanoid robots as the technology evolves.

Key areas of GXO:

1. Warehouse management: GXO operates large-scale, automated warehouses that utilize sophisticated technology to manage inventory, order fulfillment and distribution. This includes the use of robotics, AI and data analytics to improve efficiency and accuracy in managing supply chains.
2. E-commerce fulfillment: GXO specializes in providing logistics services for e-commerce companies, including fast order processing, picking, packing and last-mile delivery solutions.
3. Transportation and distribution: The company offers end-to-end transportation management services, optimizing routes and using data-driven systems to improve fuel efficiency, delivery time and cost-effectiveness.
4. Cold chain logistics: GXO also manages cold storage and temperature-sensitive goods, offering specialized logistics solutions for food, pharmaceuticals and other perishable products.

GXO is exploring humanoid robots for:

1. Assistive tasks in warehouses: Humanoid robots are being developed with the potential to assist in warehouses with tasks that require human-like dexterity and mobility. They could perform tasks like sorting, packaging and even delivering materials across different sections of a warehouse.
2. Customer service: Humanoid robots might also be used in customer-facing roles within logistics operations. For instance, they could assist with customer queries or provide support in retail environments where GXO provides fulfillment services.
3. Human-robot collaboration: GXO, like other companies in the logistics and supply chain sector, is likely to focus on robots that complement human workers rather than replace them entirely. Humanoid robots can be deployed in environments where human workers are still essential, but can be augmented by automation to handle repetitive or physically demanding tasks.

Global Alpha also owns Kerry Logistics Network Limited (636 HK)

Kerry Logistics is a Hong Kong-listed third-party logistics (3PL) provider offering a comprehensive range of supply-chain solutions. Their services include integrated logistics, international freight forwarding (air, ocean, road, rail and multimodal), industrial project logistics, cross-border e-commerce, last-mile fulfillment and infrastructure investment. With a presence in 59 countries and territories, Kerry Logistics has established a solid foothold in many of the world’s emerging markets. ​

Incorporating robotics into their operations has significantly enhanced Kerry Logistics’ efficiency and profitability. For instance, in 2023, they implemented the « KOOLBee » sorting robots across facilities in Hong Kong, Tianjin and Dongguan. These intelligent and flexible robots increased overall sorting productivity by 270%, enabling the company to meet the growing demands of fashion e-commerce fulfillment. ​

Additionally, in 2021, Kerry Logistics introduced « KOOLBotic » robotic arms dedicated to cold chain logistics in the food and beverage industry. These robotic arms improved sorting productivity by 20% and allowed operations to run 20-hour shifts in low-temperature environments, effectively reducing human contact during the pandemic. ​

By integrating such robotic solutions, Kerry Logistics has not only boosted operational efficiency but also enhanced its capacity to handle large volumes and meet customer expectations, thereby positively impacting profitability.

Although we are excited by the prospect of humanoid robots, the early stages of the technology keeps us from integrating their commercial viability in our financial assumptions.  It is a question of “when,” not “if.” These themes continue to provide us with opportunities and earnings growth in our investment universe.

In early March, our emerging markets team traveled to Jakarta, Indonesia. Given the political transition following the presidential election last year and ongoing macroeconomic headwinds, we sought to assess the market firsthand. For bottom-up investors, Indonesia has long been one of the most promising equity markets in Emerging Asia, and despite near-term challenges, we continue to see compelling long-term investment opportunities.

Jakarta can be a difficult city to navigate, but with the onset of Ramadan, the usual congestion was noticeably lighter, allowing us to efficiently move between meetings. As the world’s largest Muslim-majority country, Indonesia experiences notable shifts in consumer behavior and urban activity during the holy month. While moving around the city, we were particularly impressed by the quality of Jakarta’s road infrastructure, which, in many areas, exceeds what we have seen in the capitals of more developed countries. The improvements in connectivity and urban planning are a testament to Indonesia’s infrastructure investments over the past decade. Over the course of the week, we met with companies across the consumer, healthcare, real estate and industrial sectors, gaining valuable insights into the country’s evolving economic landscape.

A recurring theme in our discussions was the growing fragility of the Indonesian consumer, particularly in Java, the most economically and demographically significant of Indonesia’s 17,000 islands, accounting for 56% of the population and 57% of GDP. Over the past few years, real wage growth has lagged inflation, eroding purchasing power across all income segments. However, while businesses serving the urban middle class are experiencing a notable slowdown, some ex-Java regions have shown resilience, benefiting from recent minimum wage increases, social aid for low-income groups, commodity-linked employment and past infrastructure investments.

This consumer sentiment is most evident in downtrading, as households opt for cheaper alternatives across food, personal care and general merchandise. A notable trend has been the shift away from multinational companies, such as Unilever, in favour of more affordable local alternatives that offer comparable quality at lower price points. Companies in healthcare and discretionary retail are reporting lower volumes, even as premium segments remain more stable. Our meetings and channel checks confirmed that consumption weakness among middle-income consumers is entrenched, creating a challenging near-term outlook for businesses exposed to domestic demand.

The continued depreciation of the rupiah adds to the pressure. The currency is among the worst-performing in Asia year to date, despite active central bank interventions. Foreign investors have pulled USD1.8 billion from Indonesian equities this year, and on March 18, the Jakarta Composite Index triggered a trading halt after a 5% intraday drop, highlighting nervousness in the local market.

Although the new government has set ambitious economic targets, many investors remain cautious about execution risks. President Prabowo has announced a goal of achieving 8% GDP growth, a level Indonesia has not seen since 1995. With structural constraints and weak private sector investment, breaking out of the 5% growth range recorded in recent years remains a significant challenge.

One of the government’s most ambitious initiatives is the Danantara Sovereign Wealth Fund, designed to consolidate state-owned assets and fund strategic projects. Danantara has a goal of reaching USD900 billion in assets under management, which would make it one of the largest sovereign wealth funds globally. However, questions remain about its governance, transparency and the potential impact on state-owned enterprises (SOEs). With Danantara expected to rely on SOE dividend payouts, banking and energy sectors could see their capital allocation priorities altered.

At the same time, the government’s pivot away from infrastructure spending raises concerns about long-term economic sustainability. Over the last decade, Indonesia’s growth has been supported by significant public infrastructure projects, such as the Trans-Java Toll Road, which improved connectivity and regional economic development. The decision to reallocate resources toward populist policies, such as the free school meal program, has introduced fiscal uncertainties, particularly as recent revenue collection fell short of expectations.

Implementing free school meal programs has proven effective in combating malnutrition and improving educational outcomes in various countries. For instance, India’s Mid Day Meal Scheme, which serves nutritious lunches to over 97 million children daily, has led to increased school attendance and a 31% reduction in anemia prevalence among adolescent girls. However, executing such an initiative across Indonesia’s vast archipelago presents significant logistical challenges. Ensuring the consistent distribution of fresh meals to remote and diverse regions requires substantial infrastructure and coordination efforts.

Beyond economic policies, we noted concerns about the rising military presence in government institutions, a development that some investors worry could signal a shift toward a more centralized power structure. While Indonesia has undergone remarkable democratic progress since the fall of Suharto’s authoritarian rule in 1998, memories of military-dominated governance still linger. While this shift has raised alarms among some observers, it is important to distinguish today’s political landscape from the Suharto era, as institutional limits on military influence have since been established.

For foreign investors, rule of law, policy predictability and strong institutions remain critical factors in assessing investment opportunities. Any perception of reduced transparency or shifts away from a market-driven economy could weigh on investor sentiment. While the trend warrants monitoring, fears of a full-scale return to military-dominated governance appear overstated.

Despite macro headwinds, Indonesia continues to offer structural advantages that make it one of the most attractive long-term investment destinations in Emerging Asia. With a population of over 270 million and a median age of just 30, the country remains one of the largest and youngest consumer markets globally.

Amid the macroeconomic pressures, healthcare remains one of Indonesia’s most resilient sectors, driven by rising demand and structural under-penetration. The country’s healthcare expenditure stands at only ~3% of GDP, one of the lowest in ASEAN, with the doctor and hospital bed ratios per 1,000 inhabitants (0.7 and 1.2, respectively) remaining well below the global average. The positive demographic trend and government-backed healthcare program (BPJS Kesehatan) continue to support patient volumes, with private hospital networks benefiting from both scale efficiencies and growing intensities. As Indonesia works to improve access to quality healthcare and expand private insurance adoption, the sector presents compelling long-term growth potential, even in a more challenging economic environment.

Indonesia has demonstrated resilience through past economic cycles, maintaining a relatively strong external position with foreign exchange reserves of approximately USD155 billion and government debt at ~39% of GDP. In 2024, the country recorded a current account deficit of 0.6% of GDP and a fiscal deficit of 2.3% of GDP, both within a manageable range for an emerging market. From a valuation perspective, Indonesian equities are now trading at very compelling levels, with the Jakarta Composite Index (JCI) at ~11x forward P/E, roughly two standard deviations below its 10-year average.

Source: Bloomberg

If global monetary conditions ease, Indonesia could be well-positioned for a rerating.

In this environment, stock picking is key. We continue to focus on companies with strong pricing power, resilient demand drivers and long-term structural advantages – qualities exemplified by our holdings in Sido Muncul and Mitra Adiperkasa.

Industri Jamu Dan Farmasi Sido Muncul Tbk PT (SIDO IJ) is Indonesia’s leading producer of traditional herbal medicines and functional beverages. Its flagship brand, Tolak Angin, is synonymous with natural flu and cold relief, commanding a market share of 72% in the herbal cold symptoms product category and enjoying strong consumer loyalty and premium pricing power while remaining a staple of Indonesian households. The company’s vertically integrated supply chain improves cost efficiency, further strengthening its margin resilience in an inflationary environment. Unlike many consumer goods companies that face pressure from rupiah depreciation, Sido Muncul is largely insulated from currency volatility as its raw material sourcing and key input costs are primarily local. With a net cash position and ~7% dividend yield, Sido Muncul combines defensive qualities with long-term structural growth, supported by expansion into functional beverages and overseas markets.

Mitra Adiperkasa Tbk PT (MAPI IJ) is Indonesia’s largest specialty retailer, operating a diverse portfolio of global brands, including Zara, Sephora, Nike, Starbucks and Apple (via authorized retail partnerships). The company benefits from strong pricing power through exclusive brand partnerships and a premium positioning, which allows it to maintain healthy performance even in softer consumption periods. While mass-market retail faces headwinds, Mitra Adiperkasa is well-positioned in the more resilient mid-to-premium consumer segment. Its long-term structural advantages stem from strong brand relationships, a well-executed omnichannel strategy and a track record of navigating economic cycles, making it a long-term winner in Indonesia’s evolving retail landscape.

Indonesia is experiencing a challenging economic transition, but its long-term structural advantages remain intact. Our Indonesian holdings are positioned for strong business fundamentals despite macro volatility.

Earlier this month, we attended the Daiwa Investment Conference in Tokyo, which is the largest conference of its kind in Japan. Over 400 companies and 650 investors participated. We met a total of 20 companies, of which six are holdings in our portfolios. Across various industries, many companies emphasized improving ROE, shareholder return and corporate governance.

The overall sentiment remained cautiously optimistic despite tariff concerns. So far, only one new tariff has been applied to imports from Japan during this second Trump administration: 25% tariffs on steel and aluminum products from all countries and regions, including Japan.

Negotiations between the United States and Japan are hard to predict. Below are key factors to consider:

• Japanese vehicles account for about 30% of Japan’s exports to the United States. If high tariffs were imposed on these, the impact would be significant.
  
   
• Japan is the single-largest overseas investor in the United States, accounting for 15% of total foreign direct investment (FDI). Net FDI by Japan in the United States reached a record high of 73 trillion yen (USD77 billion) in 2024.
• Japan targets to spend 2% of GDP on defence. Based on the record-high GDP last year at 609 trillion yen, that would mean over 12 trillion yen (USD81 billion) on defence. Japan is a major buyer of US military hardware, which includes items like missile defence systems, fighter jets and munitions.

Year to date, Japanese small caps have outperformed large caps thanks to less exposure to tariffs. This is an ideal environment for domestic-oriented companies that benefit from healthy inflation, higher consumption driven by wage hikes, and inbound tourism.

• Inflation: The core consumer price index in Japan is expected to rise 2.9% year-over-year in February 2025, after +3.2% in January. The central bank policy rate in Japan is at only 0.5%; still lots of room to raise the rate to keep inflation under control.
• Wage hike: According to Rengo, Japan’s largest union group, Japanese companies have agreed to raise wages by 5.46% in the fiscal year 2025, the second year in a row above 5%. This reflects record-high corporate profits and the need to retain staff amid a labour shortage.
• Inbound tourism: A record high of 36.9 million foreigners visited Japan in 2024, up 47.1% from 2023, and up 15.6% from 2019. The largest number of visitors to Japan came from South Korea, followed by China, Taiwan and Hong Kong. Tourists’ consumption exceeded 8 trillion yen (USD53 billion) for the first time. Expo 2025 Osaka will take place between April 13 and October 13, 2025, and aims to attract over 28 million visitors, including 3.8 million from overseas.

As part of its growth strategy, Japan has set a target of 60 million foreign visitors and 15 trillion yen in consumption in 2030. Kotobuki Spirits Co. Ltd. (2222 JP), a company we initiated last year, is well positioned to benefit from such trend.

Founded in 1952, Kotobuki Spirits is a leader in premium gift sweets in Japan. The flagship brand is LeTAO which is known for its desserts, but especially its cheesecake. Other brands include Now on Cheese, Tokyo Milk Cheese Factory, The Maple Mania and more. Points of sale are in prime locations such as train stations, department stores, shopping malls and airports. Customers are local consumers, corporates and inbound tourists (20% of total sales). Gift giving is a common part of Japanese culture and oftentimes gifts are in the form of food or treats. The size of Japan’s domestic food and beverage gift market was estimated to exceed $32 billion in 2023.

Kotobuki Spirits’ main growth strategy is to expand distribution. About half of sales are from its directly owned stores, while the rest is from wholesale and online retail. Currently, it owns 130 stores and plans to open 5-10 every year. Thanks to its strong pricing power, the company raised prices by an average of 3% in fiscal year 2023 and by 10% in fiscal year 2024.

The management team is very stable and experienced. President Seigo Kawagoe is the son of the late founder. He has been with the company since 1994. The Kawagoe family owns 29% of outstanding shares. In the December 2024 quarter results, its sales grew over 14% and its operating profit was up 15%.