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Worries about trade wars

Date: 10/09/2018

Last week was not a good one for equity investors.  The ongoing – or, in fact, escalating - worries about trade wars saw pretty much every market slide back.  Sentiment seems increasingly fragile and, despite what is still a reasonable economic backdrop, there seems little appetite for any risky assets at the moment.

Emerging markets in the spotlight

Emerging markets, as we have discussed before, have been well and truly in the spotlight.  In addition to trade, concerns are building over weaker economic growth in emerging Asia – especially China – and a swathe of interest rate rises.  Both Turkey and Argentina look set for deep recessions and South Africa is still dealing with weakness in both its economy and the rand.  It’s pretty tough to find good news – perhaps the expectations for further solid growth in India?

We have been monitoring emerging markets closely.  We are still baffled by the use of phrases such as 'contagion'.  It implies that these markets are a homogenous asset class when they are – especially in the case of smaller ‘frontier’ markets – really more of an opportunity set.  But that doesn’t matter.  At the moment perception is reality and they are going to struggle.  The key question is what do we do about them?  Stick or twist?

We see emerging and frontier markets as key strategic positions for us.  We have invested there in the full expectation that there will be difficult and volatile times.   Our decision is, therefore, a tough one.  We want to mitigate against further falls but we also think some markets – Vietnam being a good example – have been overly punished and we are reluctant to sell out at these levels.  The exception is Russia. 

Moving out of Russia

We have longer term concerns about further sanctions against Russia and, despite the clear attractions of such cheap equity valuations, we are going to cut back.  This is a hard decision to make but with no clarity about the future for Russian equities it is clear to us that our responsibility is not to gamble with our clients’ money but to reassign it elsewhere.  That reinvestment is now the subject of our consideration and we are in no hurry to make a rushed or speculative decision about it.

Risk warnings

This message is not to be construed as a solicitation or offer to buy or sell securities and does not in any way constitute investment advice, nor should it be used as the basis for any investment decision. The information contained in this message has been prepared using all reasonable care. However, it is not guaranteed as to its accuracy, and it is published solely for information purposes. Our opinions are subject to change without notice and we are not under any obligation to update or keep this information current. The investments discussed in this message may not be suitable for all investors. KW Wealth does not guarantee the performance of any investments.  Past performance is not necessarily a guide to future performance. The value of investments may go up or down and you may not get back the amount you have invested. The income from an investment is not fixed and may fluctuate. The value of an investment involving exposure to foreign currencies can be affected by exchange rate movements which may cause the value of the investment to go up or down. KW Wealth and/or its affiliated companies and/or their employees may, from time to time, hold shares or holdings in the securities discussed in this message and may as agent buy or sell those securities.

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The value of investments and any income from them can fall and you may get back less than you invested. KW, KW Wealth, KW Protect, KW Wellbeing, KW Institutional, KW Partner and KW Private Office are trading names of KW Wealth Planning Limited (registered number 01265376), KW Investment Management Limited (registered number 06931664 ) and KW Trading Services Limited (registered number 03109469) which is a member of the London Stock Exchange. Each of these companies is authorised and regulated by the Financial Conduct Authority and has its registered office at 13 Austin Friars London EC2N 2HE. KW investment Management Limited is also regulated in South Africa by Financial Sector Conduct Authority. All these companies are wholly owned subsidiaries of Kingswood Holdings Limited (registered number 42316) which is incorporated in Guernsey with registered office at Regency Court, Glategny Esplanade, St Peter Port, Guernsey, GY1 1WW.