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It seems that long ago, world markets were high on new money created by central banks, backed by enthusiasm for the efficiency and advantages of global trade.
Many bulls in the market believe that we are in a golden age where countries and companies will focus on what they do best and countries will remove more of the remaining barriers to free and fair trade between the five continents.
New fleets of large container ships, new deep-water ports and large factories have sprung up, making the vision of global trade more of a reality. China became the factory of the world, while the United States was the champion of the internet, data and social media.
Everything seems to have changed now. Former U.S. President Donald Trump spearheaded a tough challenge, arguing that China has failed to play by the rules when it comes to respecting intellectual property rights and fair access to its own markets. He questioned, emphasizing the need for advanced democracies to adequately control the essentials of survival and defense.
Then, the Covid pandemic tore supply chains and shut down factories that people depended on for just-in-time deliveries; airliners were grounded given travel restrictions.
This year, Russia is unprovoked Invasion of Ukraine Causing democracies to reassess their reliance on Russian oil and gas for fear of their purchases funding wars. President Joe Biden is now leading demands on moral and political issues to shape the trade landscape.
For some time now, I have been studying the consequences of pursuing greater national and regional economic self-reliance. The US has “Made in America,” the EU is auditing its numbers and resource needs, and China has long followed an economic model of getting many basic supplies from domestic production or friendly sources.
Overall world output and efficiency will decline compared to a purely free trade model, but there will be new winners as some countries and regions successfully build new capacity to replace imports.
This major shift in strategic objectives sets the stage for the world outlook as the market seeks to adapt to three major changes. The digital movement continues, accelerated by lockdown. Today, more and more countries want to regulate leading tech companies and ensure they have adequate access to the winning technologies of the digital revolution.
There is also a rush to provide more microprocessor production capacity in a world where electronic chips are in short supply. The Green Revolution aims to replace hydrocarbons as the main energy source in the context of countries looking to cut Russia out of oil and gas purchases.This Environmental, Social and Governance The (ESG) investing movement wants to reward companies that perform well, and some leading countries are now underperforming, creating new ethical and investment dilemmas for portfolio managers.
Russia warned investors of the risks of ignoring poor governance and ignoring international rules of conduct at the national level and at the level of company stakes in their portfolios.
Maybe ESG should apply to states and businesses. Russia has always looked cheap and could make more money from rising oil prices as the world’s recovery begins, but given the government’s apparent flaws, it’s easy to reject such an investment. That’s what we did with this portfolio.
Before buying Russian stocks, investors should have fresh memories of South Ossetia, Syria and Crimea.when i see the government President Xi Jinping. While there may be money-making opportunities in the world’s second largest economy, it’s hard to believe that a country is exercising new control over its private property sector, revolving around successful entrepreneurs, and with clear goals to rearmament and expand its territorial reach and influence.
The world is shaping itself into two major blocs. The Chinese bloc will include a Russia that relies on Chinese support and goodwill. It will make strides to build its own digital and internet architecture, invest heavily in weapons, and reach as many non-aligned countries China and Australia as possible along the Asia-Europe Belt and Road and around the island. The US-led group will include Europe, Five Eyes and parts of Central America.
Both groups will cater to India, Brazil and parts of Africa. The EU will seek to differentiate itself from certain features of U.S. policy, but will still rely on NATO for defense and will continue to require substantial U.S. technology in the digital, military and communications domains.
Inflation remains a pressing challenge in many developed countries, with prices rising by a staggering 9.8% in Spain last month, while the rest of Europe has seen fairly high price increases.
The tough choice still facing central banks is how to curb inflation without slowing economic growth unduly.
Stock and bond markets have fallen so far this year, largely in response to a predictable spike in inflation on both sides of the Atlantic. Economic woes are compounded by bad news that Russia is at war in Ukraine. The fund is down 4% this year, thanks to underweights in world stocks and the Green and Digital Global Technology Specialized Index.
After several years of good performance, these potential winners have also been hit by uncertainty from rising interest rates and supply disruptions. The fund’s losses are limited because it holds a quarter of inflation-linked bonds to provide some inflation protection, and a quarter of cash has the advantage of not falling in a falling market.
The bond market will bottom out in due course when it is believed that the major central banks have raised rates enough and taken hold of inflation. That would be the time to put more cash in.
Sir John Redwood is Charles Stanley’s chief global strategist. The FT Fund is a virtual portfolio designed to show how investors can use a broad range of ETFs to gain exposure to global equity markets while reducing investment costs. [email protected]
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