WeeklyWatch – Trade tensions rise

Monday 13th May 2019

Stock Take

European Parliament elections pending

As we creep closer to the prospect of a European Parliament election next week, we can see that the Tories are on track for the lowest share of a national vote by any governing party in our history – which is just another post-referendum accomplishment to add to the growing list!

We are now seeing in the polls that more than half of the people who voted Conservative in 2017 plan to vote for Nigel Farage’s Brexit Party later this month, which is looking like it will gain more seats than either Labour or the Tories.

Back in the world of Brexit, talks carried out between the government and the Labour Party showed few signs of flourishing into something prosperous, and Keir Starmer said at the weekend that a confirmatory public vote is needed for any deal to take place.

The UK also saw strong growth and employment figures, while in the Eurozone we saw that Germany’s exports were stronger than expected as the youth unemployment rates fell to almost pre-crisis levels. Moreover, most European companies are beating their first quarter earnings forecast.

Trade tensions between USA and China

Diplomatic shuffling between Washington and Beijing has been on the increase for years, and this week it has resulted in a Donald Trump-fuelled outrage, where he publicly criticised China for the uneven nature of the US-China trade, and for its intellectual property violations. This came off the back of the US finally delivering on threats to ramp up tariffs, following China’s reported willingness to go back on intellectual property commitments made during their negotiations.

This has resulted in $200 billion worth of Chinese imports to the US being subjected to a 10%-25% rise in tariffs, applying to goods leaving Chinese ports from last Friday onwards. To combat this, China’s Ministry of Commerce released a statement saying it would take ‘necessary countermeasures’.

As expected, this tension was immediately felt on global markets, with the FTSE 100, EURO STOXX 50, Japan’s TOPIX and the Shanghai Composite all taking an instant hit. The S&P 500 also ended the week down.

Some more conciliatory announcements from both sides in the following hours helped to raise hopes that a deal will be struck to ultimately avoid a full-blown trade war – there is still potential for further damage, with Oxford Economic figures stating that this friction could engulf almost $800 billion of trade.

Both nations are too large for global investors to ignore, especially as China continues to offer enormous growth potential, despite the fleeting GDP rates that have been seen in the past few decades. In addition to this, China is also vulnerable to US sanctions, and has already spent a large proportion of its stimulus budget for 2019.

Hamish Douglass of Magellan, Manager of the St. James Place International Equity fund, stated: “China really isn’t an emerging market anymore, it’s got a very large consumption class of 300 million middle class consumers, probably moving to 600 million in the next five to ten years. We are very optimistic on China and are not worried about the strong dollar effect – we are more concerned about trade wars and the short-term economic cycle.”

China weren’t the US’s only headache this week, the superpower also had other international worries to contend with, most notably in North Korea, Iran and Venezuela, as well as on their own soil. It emerged that the US’s main financial regulator has expanded its inquiry into the food major, while a former Goldman Sachs banker pleaded not guilty in a New York court to embezzling $2.7 billion in the Malaysia 1MDB scandal.

Uber’s IPO

Another big talking point for investors last week was Uber’s IPO. Although it set its shares at a pretty conservative level of $45 – giving the company a total value of $82 billion – the price dropped more than 7% on its first day of trading. They are one of several ‘unicorn’ start-ups valued at over $1 billion dollars, and last week’s events also marked one of the biggest tech IPOs since Facebook’s!

Uber’s listing also helps to showcase what is quickly becoming a bumper year for IPOs. In March, ride-hailing company Lyft also went public – and then last week they delivered their first post-listing profits report, which included a significant operating loss.

Wealth Check

This week, we’re taking a closer look at protection against death, critical illness and loss of income. Although this is something that none of us want to have to use, it is still an important factor to consider as part of your financial decision-making process. Currently, many of us take the risk of not purchasing it, as we don’t think we’ll need it.

In some consumer research carried out by Royal London, it highlights the problem of under-insurance in the UK. 40% of homeowners with a mortgage have no life cover, and a worrying 71% of homeowners have no means to cover their mortgage if they were diagnosed with a critical illness. In addition, even fewer homeowners have protected their income in the event of unemployment, illness or accident.

There is a slight change to this statistic when children are involved, as those with children are twice as likely to have life insurance – yet it’s still the case that over half of parents have no cover in place! We take it upon ourselves to insure our homes, cars and even our mobile phones for what they’re worth, so why don’t we do the same for an asset that’s the most precious and important to our families?

In The Picture

This week, Hamish Douglass of Magellan, Manager of the St. James Place International Equity fund, speaks on whether the tech giants can still do well in the markets, despite strong valuations.

The Last Word

If I get a call tomorrow and somebody says, “I’ve got an x-billion-pound company that I think might make sense for you to own”, and that I would actually like to have as part of Berkshire [Hathaway], I’ll get on the plane and be over there. We’re hoping for a deal in the UK or in Europe no matter how Brexit comes out…I have a feeling it was a mistake to vote to leave…but it doesn’t destroy my appetite in the least for making a very large acquisition in the UK.

Warren Buffett, the world’s most famous investor, speaking earlier this month about his desire to invest in the UK.

The information contained is correct as at the date of the article.

Magellan is a fund manager for St. James’s Place. The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

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