US President Donald Trump's trade war has sparked controversy in the investment community this year.
When his tariff policy was first unveiled on 'Liberation Day', markets were rattled. The S&P 500 Index (SP: .INX) plunged to a 52-week low of 4,835 points in April.
However, between deadline extensions, exemptions, and some trade deals, market sentiment has turned more positive.
Last week, the S&P 500 reached an all-time high of 6,290 points. This is a staggering 30% higher from April's low point.
However, with President Trump extending the deadline for some countries to negotiate and instructing tariffs on some nations to kick in on 1 August, uncertainty remains.
Today, the S&P 500 Index is trading at a price-to-earnings (P/E) ratio of approximately 22.
This is far above the historical average of 17. It is the highest in recent history, only to be exceeded by the Dotcom bubble that peaked in the year 2000.
The S&P/ASX 200 Index (ASX: XJO) paints a similar picture, trading at a P/E of approximately 19. This is well above its historical average of 15.
With equity markets trading at elevated multiples, Australian investors concerned about valuation may be finding it challenging to find attractively valued investment opportunities.
Image source: Getty Images
A moment for private credit
Last Friday, Marc Pinto, global head of private credit at Moody's Ratings, told Bloomberg that President Donald Trump's tariff policies present a compelling opportunity for private credit markets.
Tariffs are expected to motivate companies to shift operations to the US.
According to Pinto:
Governments are pressured and they have capacity constraints….That's where private credit markets can step in.
He highlighted data centres as an area where private credit is likely to step in and provide financing. Pinto expects US$2.5 trillion to be spent on data centres over the next 5 years, providing a massive opportunity.
How can ASX investors participate?
According to the Reserve Bank of Australia, global private credit assets under management quadrupled between 2013 and 2023 to U$2.1 trillion. North America accounts for around 70% of global private credit raised since 2008, while Europe represents around 25%.
The Reserve Bank of Australia also estimates that there is around $40 billion in private credit outstanding in Australia, which is around 2.5% of total business debt.
Previously, private credit markets were only open to the wealthy and well connected, and out of reach of retail investors. However, in recent years, they have become more 'mainstream'.
Australian investors wanting broad based exposure to private credit can invest in ASX-listed exchange-traded fund, VanEck Global Listed Private Credit (AUDH) ETF (ASX: LEND).
For an annual management fee of 0.65%, investors gain exposure to 25 of the largest listed companies involved in private credit.
This ETF has only been around since January 2024, and is therefore yet to develop a long-term track record.
Since inception, the LEND ETF has averaged a return of 6.06% per annum. This comprised of 9.75% from income and a capital loss of 3.69%
However, should Trump's trade policies spur demand for private credit, the LEND ETF could be materially higher in five years' time.
