Where to start?

I’ve been sitting staring at a blank screen for half an hour trying to decide how I start this update. It’s been a fruitless attempt to boil down all that is currently playing out and that remains in flux, to establish a core narrative.

Essentially what is the single central theme investors should be focused on?

  • Is it Trump and the US because that’s really where most of the action is?
  • The U.K. economy and the looming Brexit decision is also a biggie.
  • China and Emerging markets are in flux; lots to talk about there.
  • European growth is slowing, Italy is in trouble; what happens next?
  • The U.K. property market is starting to cool off, what will be the effects of a hard Brexit or a soft one causing interest rates to rise?
  • Can technology shares keep performing so strongly (FANG) and what about Biotech, are these still growth areas for investors?
  • And most importantly will Arsenal finish in the top four this season? (Actually, I’m pretty sure I know the answer to that one, it’s no!)

My inability to identify an overarching narrative to what will drive markets going forward is, I think, actually “the central theme” for most investors currently.

Nobody if they are candid, really knows.

There are so many elements either happening or potentially happening and central characters influencing outcomes who are unpredictable in their actions.

Does this then help us?

Well it does, in the sense of having established that ‘we know we don’t know’, the next question can be:

What do we know at a more granular level, if we chunk down from a highly opaque overarching big picture?

US

Firstly, we can see that the US economy is going gangbusters with the tax cuts and business investment stimulus kicking in, to turbo charge an already healthy growth rate.

This also shouldn’t end soon; barring Trumpian sabotage.

The US leads the world in technology, biotechnology, available investment capital and entrepreneurial spirit and with reduced taxes and regulation, they are a formidable force.

The dollar is increasingly strong as they are the first to meaningfully raise rates and this will hinder their international trade but overall, it’s by far the most dynamic market to invest in now and probably for a time going forward.

TRUMP

If we just focus on the ongoing US trade battles with pretty much everyone (because personally he is a truly awful human being with absolutely no moral compass) and the effects these could have on world trade, my suspicion is that they will (in the main) reach resolutions fairly quickly as he needs to show the voters he’s winning, upcoming US elections make this a narrative imperative.

Long, protracted, damaging stand offs with China or the EU are therefore unlikely.

EUROPE

Older money, older people, older thinking, older structures.

Slower, duller economies, politics and businesses.

Many great companies who would thrive in a more business friendly environment.

Contains the majority of the best places in the world to live.

CHINA / EMERGING MARKETS

The EM countries that are scary (Turkey, Argentina and South Africa) are small constituents of the whole.

India and China by comparison are massive and growing strongly.

Historically EM countries have fared poorly when US interest rates rise because much of their debt was dollar denominated. However, the evidence is that they have addressed this significantly over the last decade by pivoting to a far greater percentage of local currency debt and therefore, the current investor fears may be overblown.

The future world economic growth however is plainly coming mainly from EM regions.

It’s true certainly that economic growth doesn’t necessarily mean investor profits, but it’s hard not to believe that these are the fertile areas for new and vibrantly successful companies to thrive outside of the US.

JAPAN

Dreadful demographics, huge sovereign debts, significant economic, social and political structural issues.

Some world class companies.

It’s the Western Europe of the East.

U.K. / BREXIT

What an unholy mess frankly!

This total FUBAR has been on the cards from the moment we voted out.
The crowning glory to elevate an already Gordian problem to new heights of intractability was Ms May’s historically ill-judged decision to seek a general election which resulted in her becoming a total ‘Canard Mort’.

Actually, before we go on that reminds me of the greatest moment in Only Fools and Horses apart obviously from the Wine Bar scene.

Del ‘My favourite meal is Duck a l’Orange Rodders. But I don’t know how to say that in French.’

Rodney ‘it’s Canard Del’

Del ‘it certainly is bruv, it certainly is. ‘

Anyway, the issue at hand is simply this:

The rabid Outers will do everything in their power to push for a new status quo far more extreme than either the moderates or the EU can accept.

They probably have the power now with such a weak government, to scupper a less extreme / more nuanced solution.

The political conundrum Ms May has is that Labour have expressed their willingness to help her push through a softer Brexit, but if she goes down that road there’s almost certainly a leadership challenge the next day and the Conservative party tears itself asunder.

There’s just no way of knowing how this plays out but it’s fairly certain to be pretty messy.

U.K. PROPERTY / SHARES

It’s a wait and see situation but neither outcome looks especially favourable.

Soft Brexit; pound goes up, interest rates start rising, business confidence increases. Good for UK centric companies, not so good for foreign earning companies, higher rates effect property affordability.

Hard Brexit, pound crashes, interest rates stay very low, business uncertainty abounds. Better for foreign earnings of UK companies (FTSE 100 will enjoy a lower pound) less good for UK centric companies and lower interest rates better for property but business / employment uncertainty is not good for consumer confidence.

Note: This is written in a personal capacity and reflects the view of the author. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.

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