Glyn Owen: ‘US-China trade war could slow down global economy’


Glyn Owen: ‘US-China trade war could slow down global economy’

But stock market volatility is just an overdue correction, not the start of something more sinister

Momentum Investment Director Glyn Owen
Momentum Investment Director Glyn Owen

REPORTS of the death of what has been a remarkable decade-long equity bull market run have, as usual, been somewhat exaggerated.

Negative sentiment is hardly surprising given the volatility we’ve witnessed throughout October, but it’s also premature.

Yes, there has been some serious jitters over the past week, but there’s no economic data to suggest anything more sinister than a correction, which was overdue anyway, is taking place right now.

The world’s equity markets are in the midst of the second big correction this year.

The ‘goldilocks’ environment of 2017 is well and truly gone, but we are entering this more difficult stage of the cycle generally in good shape, and signs of excess are thankfully absent. Economic cycles don’t just die of old age and this one has further to run.

There are plenty of headwinds in the headlines to worry investors: the Italian debt mess, the Brexit mess, China’s slowdown as it reins in excessive debt, the withdrawal of the US from the Iran nuclear deal, triggering a surge in the oil price, geopolitics generally, problems in emerging markets, notably Turkey and Argentina.

But the really important ones, which have the potential to make a more meaningful and lasting impact on the cycle, are the US-China trade wars and the monetary tightening of the Federal Reserve. These two factors are the prime cause for the current setback and together could trigger a slowdown in global growth in the next couple of years.

Against this backdrop, investors need to show resilience, to separate important real information from the noise and try not to let irrationality, anxiety and hurry undermine investment decisions.

According to our analysis, it was only a matter of time before there was a correction in the markets, particularly in over-heated FAANGs, and this was reflected in the sharp fall of tech stocks last week.

The current volatility is likely to persist until the end of the year.

This is not a time for complacency and greater resilience is warranted in portfolios. But equally this is not the end of the cycle, sharp setbacks such as the one we are now in provides opportunities to buy into under-valued assets.

It’s important to stay invested, be prepared to ride out the bumps and avoid the temptation to time the next recession.

Investors should ensure portfolios are genuinely diversified, with a blend of assets which perform differently through the cycle.

Many multi-asset funds pay lip service to diversification but in practice hold assets with similar risk.

At Momentum we build in genuine diversification with truly uncorrelated assets. This is being reflected in the performance of our portfolios as we navigate through this more challenging phase in markets, with returns holding up much better than broad market indices.

*Glyn Owen is Investment Director of Momentum Global Investments. He has almost 40 years of investment experience and was one of the founders of Momentum’s international investment business in London in 1998.

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