Markets have endured their first negative month in 2019 after a blistering start to the year.
The major source of anxiety has been the escalating trade tensions between the US and China.
President Trump’s tweet on 5 May revealed the US administration intended to both raise tariffs on goods already suffering a penal import duty and levy additional tariffs on new products.
An additional source of concern is that US consumer goods will be more impacted by these additional taxes, raising the prospect of reduced spending from this crucial source of global demand.
China is responding in typically robust fashion. Via state media, the leadership is readying the population for a ‘Long March’, a reference to the huge sacrifices made by the Communist Party in efforts to ‘liberate’ China some 80 years ago.
The immediate impact of these new taxes and countermeasures still only scratches the surface of global trade, but fear of further escalation or the involvement of peripheral countries is weighing on investor sentiment.
Despite the heightened level of anxiety plaguing markets, history suggests using geopolitical strife as a driving force behind any investment strategy would result in poor outcomes for clients.
What is more, given the prospect of being showered with plaudits for securing a deal – whether from the press or himself – as he heads into a presidential campaign, the incentives for Trump to do a deal are very much there.
There is also the high probability of a more concerted effort from China to stimulate its economy in the face of failing negotiations.
Brewin’s Asset Allocation guidance did not change over May, reflecting our more measured approach to dealing with geopolitical events relative to those factors which might genuinely have more impact on the economic cycle.
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