Geopolitical Change and Asset Class RotationChristopher Peel - Chief Investment Officer
2017 is shaping up to be a year of momentous geopolitical change, especially in the United States and in the United Kingdom.
Democracies on both sides of the Atlantic have voted in favour of a shift towards nationalism, protectionism and the pursuit of greater sovereignty. It is far too early to predict the long-term market implications of these surprising political events. Investors will need to rely on strong risk management, portfolio diversification and patience during periods of heightened volatility.
The vocal minority in the US and many of the world’s political leaders may not like his policies, but Middle America swept him to victory and these voters are getting exactly what was promised. The Trump rally in the US equity markets is not surprising given his radical views on existing trade relationships, infrastructure spending and border controls. In time, US based manufacturing companies will regain the market share lost during the last quarter century, especially at the expense of bordering countries such as Canada and Mexico.
The government will eventually negotiate separate trade agreements with countries such as the US, China, and Australia. The UK is in a strong negotiating position to retain most of its current trade flow with the EU, given that it purchases more goods than it sells to the continent. These new trading relationships will ultimately lead to a strong recovery in sterling and a more balanced economy, which is already the strongest within the G7 countries.
Those stocks that outperformed during the corona crisis are the same ‘winners’ that outperformed before the crisis.
The recovery in US equity prices, from the corona crisis, has been one of the most rapid in history.
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In January 2019 Jerome Powell pivoted from a policy of interest rate increases and balance sheet cuts to interest rate cuts and, later that year, balance sheet expansion.
Over the last decade, the Fed has increasingly resorted to unconventional monetary policy, such as quantitative easing, or QE, to stimulate the economy.
Flying the global economy into the ground from 35,000 feet will go down as one of the most difficult and controversial decisions in the history of mankind.
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Tavistock Wealth is the investment management arm of Tavistock Investments Plc. The investment team is comprised of 7 highly educated and talented professionals.
One question I get from advisers and clients, more than any other, is why global equity markets have bounced back so far.
In the early stages of the Corona Crisis of 2020, the global economy faced a liquidity crisis.