26 April 2018, 08:06 GMT
On one level, geopolitics helps to explain the recent period of market volatility but this is arguably misleading as it demonstrates, in my view, a misunderstanding of what has driven returns over the past few years.
If you accept that excessively loose monetary policy has largely supported asset prices across the board, then your biggest fear should not be an economic slowdown driven in part by rising geopolitical tensions or a tit-for-tat trade war between the US and China. It is an economy (and a rate of price inflation) which continues to outperform the expectations embedded in the bond market which should be of most concern.
Whilst there is always the risk of complacency when writing about geopolitics, it can be helpful to think through the ambitions or intent behind some of the events that have been most central in investors’ considerations.
Let’s start with the hawkish language on import tariffs being proposed by the Trump administration, directed principally at China but potentially encompassing Europe and other trading partners.
It is hard not to believe that this is wholly politically driven. In the context of the broad US economy, even a successful renaissance in those sectors deemed to be most impacted by foreign ‘dumping’ would barely move the needle in terms of overall performance of the US economy. However, with the mid-term election on the horizon, Trump will be keen to secure the blue collar vote which is at risk of slipping as his most ‘successful’ policy initiative to date (tax reform) has benefitted Wall Street far more than Main Street.
As others have found over recent years, whilst the focus on national interest has proven a vote winner, unpicking 30 years of globalisation is far more complex and painstaking in practice. There is every chance that this will be much less impactful on the global economic outlook than is feared by some currently.
When we think about the recent air strikes in Syria, there too it can be argued that the ambition is limited, for want of a better word, to containing the use of chemical weapons rather than a more determined stance against the Assad regime. Therefore, at the moment this action feels to be a largely localised issue.
Where to look for risk
It is possible to point to numerous geopolitical flashpoints which have occurred over recent years whilst economic growth has continued to recover. The fact that the global financial system is much better capitalised and less interconnected will tend to limit the extent to which these geopolitical events trigger economic ‘shockwaves’, as they did in the period immediately after the financial crisis.
Taking this more benign view on the geopolitical environment should not, however, make you an enthusiastic buyer of markets. If I am right that the economic consequences of recent headlines will be lower than people believe, then it will be hard for central banks not to respond with tighter liquidity conditions and consequently a greater differentiation between asset prices.
In this scenario, expect choppy waters rather than a rising tide lifting all boats. The surplus liquidity in the system means that we are unlikely to see a prolonged bear market but the recent volatility that we have endured since the start of 2018 may remain with us. As we have seen with recent examples of Facebook, WPP and the impact of the high level of corporate activity across many sectors of the market, shares are more likely to be moved by specific events rather than the broader geopolitical or macro environment. In most market environments this is normally the case but it is easy to forget when we have been through an extended period where the opposite has been true.
Source: Thomson Reuters, Fidelity International, April 2018.
Lesen Sie mehr
This material was created by Fidelity International. It must not be reproduced or circulated to any other party without prior permission of Fidelity.
This communication is not directed at, and must not be acted on by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, mainland China. All persons and entities accessing the information do so on their own initiative and are responsible for compliance with applicable local laws and regulations and should consult their professional advisers.
This content may contain materials from third-parties which are supplied by companies that are not affiliated with any Fidelity entity (Third-Party Content). Fidelity has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content.
Fidelity International refers to the group of companies which form the global investment management organisation that provides products and services in designated jurisdictions outside of North America Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Fidelity only offers information on products and services and does not provide investment advice personal recommendations based on individual circumstances.
Issued in Europe: Issued by FIL Investments International (FCA registered number 122170) a firm authorised and regulated by the Financial Conduct Authority, FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier) and FIL Investment Switzerland AG, authorised and supervised by the Swiss Financial Market Supervisory Authority FINMA. For German wholesale clients issued by FIL Investment Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. For German institutional clients issued by FIL Investments International – Niederlassung Frankfurt on behalf of FIL Pension Management, Oakhill House, 130 Tonbridge Road, Hildenborough, Tonbridge, Kent TN11 9DZ.