Politics: Here to stay
All UK investors, and indeed voters, likely have 12 December marked in their calendars for the general election. As the polls sway back and forth, taking sterling strength and weakness along with it, investors are left with the tricky conundrum of which part of the market they should invest in
All UK investors, and indeed voters, likely have 12 December marked in their calendars for the general election. As the polls sway back and forth, taking sterling strength and weakness along with it, investors are left with the tricky conundrum of which part of the market they should invest in: should they favour more international assets which will likely outperform in sterling terms if the domestic currency weakens as overseas earnings see a tailwind from the translation impact, or should they look closer to home to remove the currency rate as a key determinant of overall investment return.
Investors and advisers have faced the same currency question through the political upheavals and Brexit deadlines since 2016. Taking a look forward, it seems politics and currency forecasting will remain important for investors over the next 12 months, although the focus will likely shift away from the UK.
Key events for your diary
The key events for 2020 to mark in your diary start as early as 1 January, when the US takes over the G7 presidency. This event is unlikely to be market moving, but it does set the tone for the rest of 2020, when a lot of attention will be on the US and the actions of Donald Trump.
Another key date for the calendar is 23 January. This will be the first European Central Bank meeting of 2020, the second to be presided over by Christine Lagarde since she replaced Mario Draghi. All ears will be on what Lagarde says, as some commentators are suggesting that she may look to put pressure on European governments to provide fiscal stimulus, with a particular focus on Germany’s large budget surplus.
January will wrap up with the focus back on the UK, with the latest Brexit extension due to run out and Bank of England Governor Mark Carney due to step down on 31 January.
Trade and the US election
The arrival of spring should bring global trade negotiations back to the forefront of investors’ minds. Tariffs on trade between the US and Europe clearly have the potential to spark nervousness, although a deal could be a welcome relief for stock markets. Trade negotiations are also likely to start tentatively between the UK and Europe.
Later in the year, the attention of the financial markets will be firmly on the US, with months of speculation likely ahead of November’s presidential election. Given the divergence in policies between President Trump and his likely Democratic Party challenger, the election could have a marked impact on several sectors, including technology stocks.
Given the political calendar for 2020, it’s unlikely that the end of 2019 will bring much relief for investors. It is certainly a possibility that what we’ve seen this year may only just be the beginning……..
Jon Ingram is Head of the Unconstrained portfolios sub-team within the J.P. Morgan Asset Management International Equity Group – Behavioural Finance Team