Key geopolitical factors hitting investor returns


Key geopolitical factors hitting investor returns
Brexit - along with the political saga surrounding it - is one of the major factors that investors need to keep an eye on.

Dubai - Businesses must focus in order to take advantage of opportunities that arise, sidestepping risks

By Nigel Green
 Expert View

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Published: Sun 9 Jun 2019, 9:16 PM

Last updated: Sun 9 Jun 2019, 11:17 PM

As we move into the second half of the year, geopolitical factors continue to drive investor growth and returns.
There are a number of key factors investors should now be focusing on in order to take advantage of the opportunities that arise and sidestep the risks.
First, the ongoing trade war between the US and China. The 'winner' of this war will be the one that can play the long game. US President Donald Trump wants to reach a deal before his re-election campaign gets underway, whilst his counterpart Xi Jinping needs to come to an agreement before slowing economic growth in China leads to civil unrest.
Although China has shown significantly more skill in playing the long game in the past, the economic risks to both sides are disproportionate, with China seemingly more vulnerable.
The longer the dispute continues, the greater the risks for global growth in the long-term as other countries are forced to, in effect, take sides and technology supply chains become disrupted.
Indeed, earlier this month, the trade dispute ramped up a gear. China threatened Britain with unstipulated consequences if it banned Huawei 5G technology due to security concerns. Meanwhile, UK-based mobile phone chip designer ARM can no longer supply Huawei if it is to continue its working relationship with Apple and Android.
Other factors include Brexit and the UK Conservative Party leadership battle. Following Theresa May's resignation as Prime Minister, the question now is who will take over. With many joining the leadership race, in order to appeal to the 120,000 members, most of whom want to see a no-deal Brexit on October 31, candidates will need to take a tough stance on Brexit.
This means being open to a no-deal scenario, which is the preferred option for around 70 per cent of members. Although parliament has dismissed the government making a no deal policy, it may still occur should there be an absence of any Brexit deal being accepted by parliament in October.
That said, the new PM's readiness to contemplate a no deal risks additional divides in the Tory party, as well as further party defections by MPs.
The PM would lose the slim working majority the government has at present in the House of Commons. This would be followed by a general election, which in all likelihood the Conservatives would lose.
In contrast, the Labour government would prefer a soft Brexit or a second referendum.
However, even if Britain did leave the European Union on October 31, the government would want to sign a trade agreement with the EU the next day.
As the EU takes just less than half of the UK's exports, a trade agreement will be essential to sidestep any supply chain disruptions to British firms.
As such, Britain will need to find a way to debate within itself, DUP allies and the people on ways it can reach a favourable trade agreement with the bloc, whilst making its own trade deals with the US and India, among others, as well as keep the Irish border open as per the Good Friday Agreement.
When the long list of prospective candidates has been whittled down to two, it's my view that one of them will be an ardent Brexiter who will push for a no deal Brexit. However, they will have reduced support in the House of Commons in order to pass the required EU trade-related policies after October 31.
In contrast, the other potential candidate may be a circumspect, reluctant Brexiter, who could potentially gain more backing in the House of Commons, evade a no deal situation, but their lack of fervour for Brexit would, ultimately, lead to their demise with the Conservative membership.
Perhaps we may see former foreign minister Boris Johnston, against the current minister for international development Rory Stewart? Time will tell.
Indeed, whatever the outcome of the US-China trade war, Brexit or the Tory party leadership battle, I would urge investors to ensure their portfolios are sufficiently diversified, over asset classes, sectors, geographical regions and currencies. This allows them to be in a prime position to mitigate risks and make the most of the opportunities that inevitably arise.
As I've said many times, it's important for investors to remain invested. History has taught us over time that stock markets tend to go up over the long-term, so in order not to miss out on opportunities, investors need to hang tight.
The writer is founder and CEO of deVere Group. Views expressed are his own and do not reflect the newspaper's policy.

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