President Trump's anti-trade rhetoric and isolationist language may occasionally tone down, but concerns remain that such policies could wreak havoc on America's relationship with the global economy and, in turn, the investments of clients who have assets around the world. Yet, the U.S. president’s policies are only one of many factors that influence global investment markets.
Today’s economic and political climate is uncertain. With England’s decision to exit the European union—Brexit—and nationalist sentiments worldwide, investments did and are expected to react. There are also the issues of rising interest rates in the U.S., the probability of reduced government regulations, and issues surrounding the possible enactment of tariffs. In sum, changes both at home and abroad might cause significant challenges for financial advisors who need to guide clients' international assets.
A Moment for Active Managers?
A Pensions & Investments article made a positive case for active managers. In it, Mark Burgess, chief international investment officer and global head of equities at Columbia Threadneedle Investments in London, said that the current geopolitical scene could lead to greater volatility among international assets. If that volatility ensues, there may be opportunities for savvy stock and bond pickers.
The Global Investment Future
Daniel Morris of BNP Paribas Investment Partners in London worries that if Trump follows through with loosening bank regulations and supporting isolationism, it could hurt both U.S. and international economies. These views are shared by other financial experts as well.
On the other hand, optimism abounds for emerging markets. Such markets are discussed in both the P&I piece as well as the Wall Street Journal. Should the U.S. dollar decline against global currencies, emerging markets could be strengthened, said Julian Mayo of Charlemagne Capital. Mayo suggests that India and Russia, should U.S. sanctions against them be reduced, might benefit in the future as well.
The Wall Street Journal claims that emerging markets are poised to grow at a stronger pace than the prior five-year period. As of 2017, emerging markets collectively are beating European markets by 2.8%, the largest lead since 2013. Yet economic fear and volatility could heat up if the Federal Reserve raises interest rates too quickly.
View of Investment Managers
Many managers are taking a wait-and-see approach. Those at the Danish pension fund PKA in Hellerup, Denmark, are holding steady. Inger Huus Pedersen, head of fixed income, explains that their portfolio is already well diversified and thus should hold up under any future volatility. According to P&I, many investment executives are maintaining current allocations while seeking new international opportunities as they arise. In general, investment managers understand that volatility and uncertainty come with the territory of asset management.
Reuters recently reported that in the months following the U.S. election, global investors pared back their international equity positions. Reuters' monthly asset allocation survey of 48 fund managers and chief investment officers in Europe, the U.S., Britain and Japan reported that equity exposure in global balanced portfolios was cut by a hair from 45.8% to 45.5%. It stated that most survey participants were concerned about the forthcoming European elections and expanding reflation—a combination of economic growth and inflation.
How to Safeguard Client’s Assets
Financial advisors need to continue their role, regardless of market conditions. One of their most important functions is that of an educator. Since the future is unpredictable, an advisor must help the client understand that markets are inherently volatile and that during such periods, certain components of their financial assets will fluctuate more than when markets are calm.
As referenced above by fund managers, the best remedy for future market volatility is an appropriately diversified investment portfolio, with both U.S. and international exposure. Add some education and counsel, and the financial advisor will be a proactive advocate for the investor.
The Bottom Line
Whether the global markets will be more volatile than U.S. markets going forward is unknown. Trying to outguess future market performance is a loser’s game. Ultimately, financial advisors should stay abreast of current events and keep all lines of communication open with clients.