Page 2 - ISQ UK_October 2017

INVESTMENT STRATEGY QUARTERLY

Trade Wars: Should You Pick a Side?

Chris Bailey, European Strategist, Raymond James Euro Equities*, looks at the options facing investors
as the trade war between the U.S. and China heats up.

"Just remember, once you're over the hill you begin to pick WEIGHING UP THE OPTIONS
up speed" Arthur Schopenhauer It does not take much analysis to conclude that trying to avoid all
impact is not really an option at all. Concerns about the impact on
For a number of months now, the world’s largest survey of risk assets from a trade war may push an investor into more fixed
income or cash biased investments. However, all investment
fund managers has observed that, when asked for their choices have a trade-off and the current low yielding nature of
greatest financial market fear, the most cited response has such investments does not provide much compensation,
been a ‘trade war’. There is a significant slug of rationality especially at a time of global inflation bubbling up and a global
shift from quantitative easing to quantitative tightening, which
for this. could independently prove troublesome for such assets.
Additionally, the reliance of many countries on significant non-
GLOBAL GROWTH RISK? domestic flows to support their budget deficit and national debt
The World Bank has noted that over the 2017-19 period the funding operations opens up the potential for surprising trade
predicted proportional contribution to global real gross domestic war impacts, even beyond the trickle-down impact of more
product stands at 35.2% from China and 17.9% from the United uncertain future economic growth rates. Similar unanticipated
States. Unsurprisingly, rhetorical flourishes that have spilled over tactical impacts can easily
into heightened, new tariffs, between two countries that currently afflict alternative investments, The reliance of many
directly account for over 50% of global growth at-the-margin (and a property and even gold countries on significant non-
likely even higher proportion indirectly), have induced concern. So, (admittedly of all the above domestic flows to support their
has the time come for investors to pick a side? When looking to assets have seen this and far budget deficit and national
invest outside of the UK, or even into London-listed companies that more and still persisted but debt funding operations opens
trade heavily with either nation - should investors be picking a can still be subject to more up the potential for surprising
favourite, ignoring the tension or avoiding all impact as much as tactical bouts of trade war impacts
possible? underperformance).

2 *An affiliate of Raymond James & Associates, Inc., and Raymond James Financial Services, Inc.