Markets started 2018 full of optimism. The US economy delivered stellar performance – buoyed by US president Donald Trump’s tax cuts, which propelled a surge in growth and corporate earnings – while the US unemployment rate hit an almost 50-year low. An upward drift in inflation was gradual, so there weren’t any big surprises from the US Federal Reserve, which hiked interest rates in line with its guidance.
It would be easy to imagine that the US/China trade war and the US Federal Reserve’s resolve to tighten monetary policy, which have been the two big fears hanging over the US stock market throughout 2018, are reaching some sort of stasis. The market certainly rejoiced when Fed chairman Jay Powell made the dovish comment that interest rates are “just below” the range of rates considered neutral. The Dow Jones Industrial Average index shot up by 600 points in one session, its best single-day gain since March.
Over steak, crispy chocolate and a 2014 Nicolás Catena Zapata Malbec, President Donald Trump and his Chinese counterpart Xi Jinping agreed to stand down from their impending trade war and direct their officials to focus on resolving bilateral trade problems.
Emerging markets have continued to struggle in the second half of 2018 amid an environment of heightened global equity-market volatility and geopolitical and policy risks.
However, Chetan Sehgal, lead portfolio manager of Templeton Emerging Markets Investment Trust, believes that the pullback presents long-term investors with opportunities amid what he believes is a market overreaction.
Markets have been a bit jumpy in October and, as ever, investors have looked for a suitable rationale, ranging from trade wars and slowing economic indicators, to higher interest rates.
In this case, the most likely cause was higher US interest rates, which was the reason behind the sell-off at the beginning of the year.
While the trade war between two great economic superpowers rapidly intensifies, it is sometimes instructive to turn to history to reflect on whether the US and China have learned lessons from their actions in the past.
Economic conflicts tend to be a consequence of protectionism; this is a phrase that holds true for Donald Trump’s latest antics.
Trade was the word on everyone’s lips during my recent trip to Washington DC and the mood there was grim. The US and China trade war is going to get worse before it gets better and our assumption is that all Chinese imports will be subject to tariffs sooner or later.
Chances are that most investors are not familiar with Reed Smoot or Willis Hawley. But you may soon be hearing a great deal more about this pair of obscure US lawmakers who sponsored the US Tariff Act of 1930. Almost 90 years after their legislation triggered a global trade war widely blamed for plunging the world economy into the Great Depression, president Donald Trump’s US administration stands accused of posing a similar threat, much to the chagrin of financial markets.
Despite trade war posturing and tit-for-tat tariff impositions, China-focused funds still look sound like long-term investments.