Page 3 - ISQ UK_October 2017

OCTOBER 2018

Contribution to Real Global GDP 2017-2019e (%)

All other countries
Iran
Mexico
Turkey
Brazil
Japan
UK
Canada
Australia
South Korea
Indonesia
Eurozone
India
United States
China
0 5 10 15 20 25 30 35 40
Source: World Bank via the World Economic Forum
KEEP CALM AND CARRY ON
This question needs to be tackled more directly. Surprisingly then, and diplomatic friendships. It is perhaps unsurprising a change of
a potentially more valid strategy is to keep calm and carry on, US administration has shifted their ‘pivot to Asia’ diplomatic and
acknowledging the existence of trade tensions but not regarding trade acquiescence to something much more antagonistic.
them as anything like the sole driver of asset class, market, sector
and stock performances. There is certainly something to such a This may appear to be a last throw of the dice by the US to stay as
strategy as - ironically - the preponderance of a key macroeconomic the pre-eminent global player, but the reality is that China is not yet
variable such as a trade war, allows a sharper differentiation to be even ready to take their place. As a single state party, the long-term
made with investments with alternative, positive drivers. The old perspective, ongoing domestic reform efforts in China are the main
market adage that ‘even in a deep bear market, something is going policy focus. China will respond to trade antagonism to save face
up’ has something going for it. This is supplemented by the but it is unlikely to aggressively initiate it, especially as they are
observation that efforts to quantify the impact of a trade war are committed to progressively further liberalising their trade relations.
fraught with difficulties. A recent study by the European Central Then throw in the potentially more limited capability of the US
Bank appeared to conclude that China would not be a loser from a administration to push an aggressive trade policy after the midterm
trade war. Despite an obvious negative impact threat on exports, elections in early November, and you quickly come to the conclusion
the country’s ongoing domestic market reforms, including the that trade fears may actually be at a peak.
encouragement of consumer spending, would continue apace. By In short, the side to choose in the current bout of trade angst is
contrast, American consumers would be impacted by higher import patience, flexibility and those old school active investment skills.
prices, even before the impact on exports was considered. Given
such analytical uncertainties, an approach which focuses on true
growth themes or an ability to keep paying a certain level of
dividend has an attraction. Certainly, periods of dislocation suit the KEY TAKEAWAYS:
idiosyncratic investor prepared to be greedy when others are • Global fund manager surveys have ‘trade war’ as the
fearful. However - as noted before - very few parts of the market most cited current fear.
truly exist in a vacuum.
• The old market adage that ‘even in a deep bear market,
This therefore makes the most valid strategy an attempt to something is going up’ has something going for it.
understand the potential direction of the current spat, its longevity
and materiality, and ultimately what will result. China’s singular • The trade war may appear to be a last throw of the
focus on its economic development over the past generation has dice by the US to stay as the pre-eminent global player,
achieved huge success and more recent years have seen new but the reality is that China is not yet even ready to
efforts to broaden their global influence and role, diplomatically take their place.
and politically. The recently launched Belt and Road Initiative, • Periods of dislocation suit the idiosyncratic investor
which aims to create a trade zone stretching from western Europe prepared to be greedy when others are fearful.
back to Beijing, is a clever move to curry favour and build economic

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