April 06, 2018

Stock Markets: Beijing and Washington set the tone

Management comment

Investors are reacting to the negotiations underway between the US and China blowing hot and cold. In essence, the financial world is hoping that the 40% of global GDP represented by these two economic superpowers will find room for agreement.

Belligerent rhetoric over customs tariffs, even though the debate concerns hundreds of billions of dollars, in reality has more of a psychological effect on investor confidence than any real impact on global growth. It also reflects a shift in the way the US administration is choosing to operate, now believing that it has more to gain from bilateral confrontation than from multilateral consensus.

This context has also arisen just as macroeconomic indicators reflected a marginal slowdown during March after peaking in January. Although this is a logical trend after a phase of acceleration, it does not mean that economic growth is transient. The growth rate remains at a sustained level, although Europe will now have to draw on its internal resources (reforms) for protection against the quarrel between the US and China. Long-term interest rates are currently perhaps reflecting fears over the growth rate.

Inflation is considered too low and risk aversion dominated the markets during March. The outcome of the negotiations between the US and China is unknown and remains the main driving force dictating market trends for the time being. The hard figures must not be neglected however. Once the reporting season opens, it will be time to consider the health of the micro-economy, which is a reflection of the macro-economy.

For investors, there will undoubtedly be more pitfalls during 2018 than in 2017 and fewer favourable contextual factors. This does not mean a lack of performance however, notably among equities. Returns will simply be harder to achieve as investors have fewer supports. In the Hindi language, this factor is called "jugaad", which means to do more with less.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in April 6th, 2018.

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Investors are reacting to the negotiations underway between the US and China blowing hot and cold. In essence, the financial world is hoping that the 40% of global GDP represented by these two economic superpowers will find room for agreement. Belligerent rhetoric over customs tariffs, even though the debate concerns hundreds of billions of...
2018-04-06