As Alice in Wonderland discovered when she traveled through the looking glass, we cannot change our past, but we can learn from it to prevent us from repeating the mistakes of the past. There are political, economic and investment implications to this realization as well. All too often, governments, economists and investors fail to learn from their mistakes or the broader geopolitical lessons of the past.
As we have mentioned in previous articles, the US election cycle garners media attention, but ultimately does not really impact market returns. Many US investors have a home country investment bias, which tends to narrow the focus to US-centric developments and opportunities. Overlooking global markets, economies, and developments is a mistake, in our view. Not only can the addition of international stock exposure improve the diversification of an otherwise solely US based portfolio, but very recent developments (global economic slowdown) have increased the correlation of developed market economies to higher levels than at any time in history. Emerging markets are also strongly correlated and can also trade in line with the US during periods of heightened volatility.
The rationale for this is the interlinking of the economic flow of capital and goods across the globe. What happens across the world can have profound impacts on the US economy and financial markets. At the time of this writing, the most significant potentially impactful news developments are taking place outside the US. A global focus, even for domestic stock portfolios, helps us investigate developments that may have occurred in the past, the historical outcomes and the implications going forward. Doing so can offer opportunities to position portfolios so that they avoid, or at least reduce, negative impacts. It also offers the opportunity to position portfolios to take advantage of expected positive outcomes where investors may have missed out previously.
We are monitoring various global events, including the war in the Middle East and the risk of a wider regional war. This has investment implications for many industries, including defense, energy, and shipping. It also has significant geopolitical implications as new regional alliances grow and expand, thereby affecting US politics and global trade agreements. We are also watching China closely, as the recently announced stimulus efforts may or may not prove sufficient to pull China out of a downward economic trajectory. That potential outcome has implications for the US balance of trade, currency flows across the globe, and goods inflation. There is a not-insignificant risk that a hurting China moves to seize Taiwan to boost its economic growth potential.
The impact these types of global events have had on past outcomes gives us a fair idea of potential future outcomes, and offers us the opportunity to position accordingly to both avoid negative impacts to investor portfolios and take advantage of opportunities. Engaging with a trusted partner is the best way to ensure the emphasis is on considering all available information. We are stewards of your financial plans and assets, and we constantly strive to help you achieve your financial goals.
Investment Commentary: Through the Looking Glass
By Andrew R. Duncan, CFA®
As Alice in Wonderland discovered when she traveled through the looking glass, we cannot change our past, but we can learn from it to prevent us from repeating the mistakes of the past. There are political, economic and investment implications to this realization as well. All too often, governments, economists and investors fail to learn from their mistakes or the broader geopolitical lessons of the past.
As we have mentioned in previous articles, the US election cycle garners media attention, but ultimately does not really impact market returns. Many US investors have a home country investment bias, which tends to narrow the focus to US-centric developments and opportunities. Overlooking global markets, economies, and developments is a mistake, in our view. Not only can the addition of international stock exposure improve the diversification of an otherwise solely US based portfolio, but very recent developments (global economic slowdown) have increased the correlation of developed market economies to higher levels than at any time in history. Emerging markets are also strongly correlated and can also trade in line with the US during periods of heightened volatility.
The rationale for this is the interlinking of the economic flow of capital and goods across the globe. What happens across the world can have profound impacts on the US economy and financial markets. At the time of this writing, the most significant potentially impactful news developments are taking place outside the US. A global focus, even for domestic stock portfolios, helps us investigate developments that may have occurred in the past, the historical outcomes and the implications going forward. Doing so can offer opportunities to position portfolios so that they avoid, or at least reduce, negative impacts. It also offers the opportunity to position portfolios to take advantage of expected positive outcomes where investors may have missed out previously.
We are monitoring various global events, including the war in the Middle East and the risk of a wider regional war. This has investment implications for many industries, including defense, energy, and shipping. It also has significant geopolitical implications as new regional alliances grow and expand, thereby affecting US politics and global trade agreements. We are also watching China closely, as the recently announced stimulus efforts may or may not prove sufficient to pull China out of a downward economic trajectory. That potential outcome has implications for the US balance of trade, currency flows across the globe, and goods inflation. There is a not-insignificant risk that a hurting China moves to seize Taiwan to boost its economic growth potential.
The impact these types of global events have had on past outcomes gives us a fair idea of potential future outcomes, and offers us the opportunity to position accordingly to both avoid negative impacts to investor portfolios and take advantage of opportunities. Engaging with a trusted partner is the best way to ensure the emphasis is on considering all available information. We are stewards of your financial plans and assets, and we constantly strive to help you achieve your financial goals.
Shannon DermodyTEST