The US President’s announcement that the increase in customs duties on Chinese products is being deferred provided a solid new anchor point for investors. Although it was not unexpected, this news confirmed Trump’s strategy of offering the carrot at times and wielding the stick at others, then using a Band-Aid when the stick does too much damage.
March could also bring a deferral of a different kind: that of the Brexit date scheduled for 29th of the month. Unable to present a united front to an intransigent Europe, the British are said to be considering, as always, postponing their exit from our customs union. We may, therefore, be heading for a fourth year of negotiations since the referendum of June 2016. Citizens of the United Kingdom could well be justified in wondering whether Brexit is ultimately nothing more than an episode of the great English comedy series, the Benny Hill Show.
March is also a record-breaking month: firstly, in terms of American expansion, which is set to stand out as the most long term in history, despite the transitory weakness of the first quarter of 2019, and then secondly, it’s a year of record flows. This is becoming a familiar refrain, but these have to be monitored to understand how investors are thinking. $50 billion have been withdrawn from global equity markets the worst start to a year in a decade), whilst more than $43 billion have been poured into credit. This week, the divergence between Europe and the United States has once more been glaringly obvious. $9 billion have been invested in US equities, whilst European equities have seen divestments of $4 billion. Therefore, 2019 could be a particularly bad year for equity market flows.
If and when these flows return one day, it could also be one of the strongest rebounds the markets have ever known. Investors are profiting from performance having been broadly positive since the beginning of the year, but at some point, if global growth continues to progress at around 3-3.5%, investors will have to reconsider investing in risky assets.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in March 1st, 2019.
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