Trade and tech have dominated the financial markets over the last few weeks; both of which have had a negative impact on the sentiment in financial markets and potentially on the global economy more broadly.
In the tech space, the focus has really been on Facebook and Cambridge Analytica, and concerns over the use of user data. These events have implications for consumer behaviour and regulation, and the ways these may now change.
It’s an interesting point for financial markets and for these companies more broadly, because it’s really about the extent to which any changes in regulation or customer behaviour impact the speed at which they’re growing, and the profitability they can achieve.
Although tighter regulation may make it more difficult for these companies to grow, they may be able to use regulation as a tool to defend themselves against competition, as it becomes harder for smaller players to deal with the demands of privacy.
Trade and economic growth
If we think tech is about the price of the asset, trade is about growth, and economic growth more specifically. We are beginning to see a gradual escalation between the US and China on tariffs and trade.
This could have negative implications for economic growth, as the outlooks for many countries is pulled into question. There will inevitably be winners and losers, but in totality the impact is likely to be negative.
But it’s too soon to say a trade war has arrived, but there’s a certain amount of positioning that’s going on that’s likely to ratchet down growth expectations in a mid- to long-term view. However, neither China nor America are keen to see a sharp deceleration in global growth, and all recognise the opportunities that come with global trade.
From a portfolio perspective, we’re not yet ready to make an aggressive defensive move as we still see some relatively sound fundamentals, but we’ll keep monitoring the markets to ensure we’re correctly positioned.
Impact on Moneyfarm portfolios
Equity market volatility has picked up in the first quarter, and we’re seeing this reflected in weaker financial markets. A couple of things are notable for us when we look at the portfolios.
The first is that even though portfolios and markets are down in the first quarter, the benefits of diversification in terms of relatively low levels of volatility have continued to hold up. The volatility of the Moneyfarm model portfolios are still below longer-term targets.
The second is that our relatively conservative positioning has cushioned us from the harsh sell-off seen in global equity markets.
Overall, we need to look to the future. We remain confident that the underlying fundamentals are good, although we can expect market volatility to have moved back to a higher level after such a low 2017.
Although it can be difficult in the midst of market noise, try and focus on your long-term goals to avoid any potential costly knee-jerk reactions to short-term fluctuations.