If we look back on the last year, we have had an eventful time. If we expand that time horizon to the last c 4 years who would have believed the following would happen:
- We vote to leave the EU as a nation
- Donald Trump becomes the US President
- Boris Johnson is the Prime Minister of the UK
- John Bercow as Speaker frustrates democracy with the aid of c 75% of MPs
- Labour voters turn against Jeremy Corbyn and his policy (lack of policy?) on Brexit
We have had our fair share of political drama in the UK recently, but I think it’s important that we look more globally too. The biggest issue impacting on markets is the progress (or lack of it) that the US and China are making on their trade deal.
As the US and China move into Phase Two of their trade negotiations they will get immersed in the detail on export and import controls, investment restrictions, and sanctions rather than with tariffs. The key case to watch will be how the US deal with the global technology business Huawei. Huawei are a major issue for the US on 5G telecoms technology. 5G will open the door to a wide range of new technologies – a ‘game changer’.
Other technologies such as Quantum Computing and AI/Machine Learning could have a big impact on our lives too. The investment opportunities are numerous.
There are also plenty of risks. The effects of climate change will continue to be felt globally, and populist politics show no sign of receding. Currently it looks like the barriers to international trade being erected in the US and the UK will be long-term features and may even be added to by other countries. In the 2010s we saw an acceleration of globalisation, the 2020s could well see a reversal. The potential effects of that are unclear.
The slow breaking up of the global trade order would not be good news for China, but it would not stop its rise. It has now reached a size and maturity which allows it – like the US – to rely more and more on domestic demand. Regardless of the global trade picture, we would expect Chinese economic rate of growth to slow from its recent pace over the long term – if only for demographic reasons. The country’s place in the global economic order is entrenched. We expect this to lead to increased confrontation between the US and China, particularly if populism prevails in the former.
The 2020s bring promises and risks, like any new decade. Themes that have been ongoing for decades (globalisation, financialisation, environmental degradation, etc.) could well be set in reverse. Be wary of predictions too, the last few years has shown us all that it’s difficult to predict what will happen next.
In this volatile market the FTSE 100 is not in a bad place and other indices are in a good position too. With the global political backdrop, the markets look reasonable right now. But hold onto your hats – it could be a bumpy ride!
If we do experience high volatility, please remember the following:
- Remain invested in real growth assets
- Diversification helps, be well diversified
- Ignore short term volatility if you can
- Investing is for the long term
Wishing you all a happy, healthy and prosperous New Year!
Steve Speed
30/12/2019
Includes some content from FP & Tatton.