Global equity markets have tracked downwards over the last few months and suffered a further bout of weakness last week in light of growing concerns over US-China trade frictions and the potential for this to damage economic growth. Alongside this, the ramifications of tighter monetary policy around the world and other political risks such as a disorderly Brexit are also weighing on sentiment.
Despite President Trump’s announcement that a ceasefire had been agreed at the recent G20 summit, US-China tensions have again been stoked following the arrest last week of Meng Wanzhou, chief financial officer of Chinese telecoms giant Huawei. The arrest was made while she was in transit in Vancouver, following a US extradition request that is based on accusations of breaking US sanctions on Iran. Over the weekend, China demanded her release and investors are concerned that this could mark the start of further disagreements between the two superpowers.
Closer to home, the difficulties in agreeing a Brexit deal continue despite apparent progress being made on the draft agreement announced last month. In the latest setback, Theresa May has been forced to abort a parliamentary vote on her Brexit plan at the eleventh hour.
The broader context to the recent equity market weakness is that it follows a period of strong gains throughout 2016 and 2017. Fundamentally the global economy continues to perform robustly, especially in the US, where the recent rises in interest rates represent a pre-emptive policy decision by the Federal Reserve to manage growth and control inflationary pressures. Over the long term, we remain convinced that global growth will continue to be dragged upwards thanks to rising populations, continuing innovation and productivity improvements. In turn, this should help equities to continue to deliver attractive long term returns – despite volatility in the short term.