Lots of talk this week about the slower forecasts in China and what the impact of trade wars might be. Can we make sensible predictions on any of this or will the stock market defy logic like a truculent Pantomime Dame?
This week Aviva Investors announced that it has reduced its overweight position in emerging market shares. They feel less positive about the region when compared to other markets, and looking more specifically to China, many commentators feel that the ‘growth at all costs’ mantra is in the past.
The US is growing strongly. This suggests that the Fed doesn’t need to maintain such low interest rates, which act as a sort of Viagra for the economy. Aviva’s crystal ball suggests that the US is likely to raise interest rates another six times before the end of 2019. SIX TIMES! That’s more that Dame Joan Collins’ weddings. In the trade, this is known as ‘a lot’.
Every investor makes a risk/return trade off and so US interest rates impact other markets. If you know the stable US markets can pay you a higher certain interest rate, the less inclined you are to chance your lot in riskier emerging markets.
There’s another shadow hanging over China. Trade.