WeeklyWatch – Investors unnerved by global growth concerns

07 October 2019

Stock Take

Host countries of the Rugby World Cup and IAAF World Athletics Championships have laid on real spectacles for sports fans but, last week, attendees were dwarfed by the 70th anniversary celebrations of the People’s Republic of China. The ceremony saw a procession of 100,000 civilians on floats passing by Tiananmen Square’s Gate of Heavenly Peace (ironically with several intercontinental missiles also forming part of the parade).

China looks to address property crisis in Hong Kong

The choreography did not reach Hong Kong; however, where the protests continued with intermittent outbursts of violence. Hong Kong is currently equivalent to just 2.7% of the mainland economy, compared to 18% back in 1997 at the handover. That said, Beijing is not expected to launch a 1989-style martial law response – instead, last week it moved towards tackling the city’s most immediate economic challenge, by looking to free up land to build more social housing.

After all, focusing on economics has kept the Chinese Communist Party in power. Historically the country has grown at 14.2% per year (in 2007), and even today’s 6% rate is not to be sniffed at: it creates well over half a trillion dollars of new wealth a year. Beijing has also criticised Hong Kong’s property tycoons amid rocketing property prices and a lack of affordable public housing in the city – the previously fruitful relationship between the government and the property magnets has undoubtedly become strained.

Economic growth in decline?

Despite China’s buoyancy, there were a series of signals last week that suggest that economic global growth is declining. Consumption and services data across the US, UK and eurozone are all struggling and, more specifically, bleak manufacturing data suggest that the US-China trade war is being sorely felt.

It is a war that shows little sign of abating. In a ruling last week, the World Trade Organization (WTO) found that Airbus – a consortium backed by Germany, the UK, France and Spain – had indeed received unlawful state aid. The ruling legitimises US sanctions, which will be imposed later this month, to the tune of a 25% tax on a range of imports from the EU.

Paul Boyne of Manulife, Manager of the St. James’s Place Global Equity Income fund, said:

“If applied on both sides, these tariffs will severely impact US and EU industries, putting high costs on the acquisition of new aircraft for US and EU airlines. With regard to our Airbus holding, we expect to see increased volatility in the share price as these tariff battles work their way through. In fact, Airbus stock was up 4% on Thursday as the United States Trade Representative tariff announcement on Airbus was a lot less than expected.”

The US rocked by impeachment proceedings

The continued saga of impeachment proceedings against the President continued to shake the US last week, especially when a second whistleblower came forward on Sunday. Having already been accused of seeking Ukrainian government help to besmirch the name of the Biden family, Donald Trump last week openly called on China to investigate the Bidens instead – a rogue political move by any standards. Some speculate that the crisis makes a pre-election US-China trade deal all the more likely – time will tell!

A weight on investors’ minds

Fears over global growth and trade were certainly at the forefront of investors’ thoughts last week: the S&P 500 slipped over the period. However, falling growth expectations also raised hopes that the Fed might yet take further supportive action. Friday’s US jobs numbers may help to make up the Committee’s mind – the numbers fell short of expectations.

Not even China’s Platinum anniversary nor the Rugby World Cup were enough to prevent Asian stocks tumbling last week, and indices in Shanghai, Hong Kong and Tokyo all dipped, although losses were relatively contained. European stocks, meanwhile, were hit by the stream of negative economic data, as well as by the US tariffs decision; by Friday, however, hopes had emerged that the Fed might be softening further served to cushion the week’s falls.

The Brexit saga rolls on

In the UK, the CEO of Britain’s largest supermarket chain, Tesco, announced his forthcoming departure. However tough the replacement’s job proves to be, it pales next to that of the Prime Minister. Last week Boris Johnson presented his new Brexit proposal to the EU. It includes customs checks, but not at the Northern Irish border, and it necessitates a regulatory border in the Irish Sea. Fearful of becoming a scapegoat, the EU was tactful, but still, the deal looks unlikely to fly in Brussels.

The Irish Taoiseach said it failed to protect the “all-island economy” and that its proposals “do not fully meet the agreed objectives of the backstop”, while Donald Tusk said, “We remain open but still unconvinced.” The PM needs EU approval at its Council meeting on 17-18 October. The passing of the Benn Act in parliament last month means he must request an extension on 19 October, should no deal be agreed before then.

Wealth Check

Saving for children was once viewed as a nice extra, but it is increasingly becoming a necessity. The cost of university or college fees, added to slowing wage growth and the cost of getting on the first rung of the housing ladder, means that parents are increasingly trying to plan ahead.

But it doesn’t take much to make a lasting difference – in this video, St. James’s Place introduces a few basics on how to invest for your children’s future.

The figures quoted in the video are examples only and they are not guaranteed. They are not minimum and maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment.

In the Picture

Last week saw the 70th anniversary of the People’s Republic of China. In that period, China’s national population has risen to be the largest in human history – the country has undergone what the Encyclopaedia of Global Migration said is “likely the largest migration in human history” (as rural dwellers move to the cities), and China has enjoyed what the World Bank called “the fastest sustained expansion by a major economy in history” earlier in the year.

The Last Word

It doesn’t matter if the cat is black or white, so long as it catches mice.

Deng Xiaoping, who oversaw China’s modern opening up to the world, on choosing between different economic systems.

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

Manulife and RWC Partners are fund managers for St. James’s Place.

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.

FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

© S&P Dow Jones LLC 2019; all rights reserved.

Back to news