There’s no doubting we’re in a time of global uncertainty for markets.
Technology stocks have been the hype of 2024, but have experienced some fluctuations recently.
Tensions in trade among the largest economies in the world are rising too.
We’ve seen a devastating war in Ukraine, displacing millions, and now conflict in the Middle East is growing. Above all, our thoughts are with those affected and we continue to hope for an end to both.
Political uncertainty is also adding to worries across the globe.
In the biggest economy in the world, President Biden pulled out for re-election. On this side of the pond, Labour won the UK General Election, ending 14 years of Tory rule.
But what does this all mean for markets and investments?
This article isn’t personal advice. If you’re not sure an investment is right for you, ask for financial advice. Investments will go down as well as up in value, so you could get back less than you invest.
Three major economies, three major changes
The most obvious and biggest potential change is the upcoming 2024 US Election.
As the world’s largest economy, the presidential election can easily influence local and global markets.
The latest polls suggest Harris has a small lead over Trump. But as we lead up to the final months of the campaign, the election outcome is still a coin toss and either candidate could win.
But Harris and Trump have very different policies and could therefore mean very different things for the economy and markets.
In India, for the first time in the Bharatiya Janata Party (BJP)’s decade of power, it wasn’t able to secure a majority at the Lok Sabha election.
The Indian Rupee weakened against the US dollar among the uncertainty of the result. This could be a concern for foreign investors invested in local currency as gains transferred back to their home country could have lower value.
Election periods might bring uncertainty, but factors like the US Federal Reserve’s (Fed) interest rate cut and the newly-elected Labour party’s promised UK growth plans might have a positive impact.
Stock market volatility during elections is common, but often temporary. Investors might hesitate due to potential policy shifts and rising budget deficits, affecting growth and inflation.
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Global trade tensions
Ongoing trade disputes, especially between the US and China, have been disrupting markets.
The US imposed tariffs of 100% on imports of Chinese electric vehicles (EVs). This was followed in kind with tariffs of up to 37.6% by the EU. This marks a significant blow to Chinese EV distribution, especially as the EU is their largest foreign market. China threatened with retaliation.
Tariffs can increase costs for businesses and consumers. This can lead to upward inflationary pressure and complications with supply chains. Where stocks are concerned, this could affect profitability if sales slip.
What does a potential recession mean for investment portfolios?
We’ve been hearing about a recession being long overdue for some time now.
There are a lot of factors that could trigger regional recessions around the globe at any point given the current sensitivity of local economies.
In the US, the Fed suggests that a chance of a recession is 50%. The UK was in a recession at the end of 2023, but there wasn’t much to talk about in that instance.
It shows recessions are a normal element of an economic cycle. However, recessions can also affect stock returns or the ability of companies to pay out dividends.
What’s the impact of increased interest rates?
Relative to the last 10 years, rates are still quite high.
While this might be welcome to many savers, it does have implications for investors, driven in some ways by costs of borrowing.
In the US, over the last year, we saw a string of bankruptcies among many small to mid-sized banks triggered by these higher rates. Mortgage rates also rose, meaning an increased default risk exists.
All this can lead to complications with stock valuations for those heavily reliant on debt financing.
Why is global investing so important?
When there’s widespread uncertainty in different corners of the world, it’s more important than ever to manage investment risk in case the unexpected happens.
You can do this through diversification.
Putting all your eggs in one basket can be risky. Instead, spreading your investments across different parts of the world, sectors and industries makes you less dependent on one area to perform for you.
Investing across a range of markets means you can smooth out the effects of one suffering a downturn while still reaping rewards when others do well.
Investing should also always be for the long term – that means five years or more. When you invest with this mindset, what the price of an investment is tomorrow doesn’t matter, since they don’t expect to cash their money out in the short term. Over the long run, the volatility can hopefully be smoothed out.
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
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The team have blended the investment styles of these external managers for a best-of-all approach.
The fund invests all around the world, including higher-risk emerging markets, and aims to provide a monthly income, which is managed for you by the HL team. All investors need to decide is whether they want to take that income or re-invest it.
It’s a great option if you’re comfortable building up your own diversified portfolio of investments.
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You can decide between funds that aim to beat the markets or lower-cost funds which aim to track different investment markets.
The HL fund range is managed by Hargreaves Lansdown Fund Managers Ltd.