4 Key Global Economic Risks
From trade tensions with China to Britain’s new Prime Minister and the potential of a hard Brexit there are many geopolitical risks that are important to keep an eye on. In this issue of Steady Investor’s Weekly, we look at the top 4 geopolitical risks and what they could mean for the global economy. Read on to get the details.
Risk #1: U.S. – China Deadlock
The trade dispute between the U.S. and China is well-documented and followed closely. This dispute is often seen by investors as a matter of China needing to import more, to loosen regulations on U.S. companies operating there, and to relax technology transfer rules. These matters are indeed on the table. But there’s more risk in this story, a big portion of which stems from the fight over 5G.1
The nation that ‘wins’ the race to deploy 5G globally is largely seen as having a long-term competitive advantage, but the U.S. also sees 5G as a national security issue. That’s why the United States is taking increasing measures to safeguard our technology and intellectual property from transfers, acquisitions and other perceived threats from China. The U.S. is also actively blocking some types of Chinese investment in U.S. technology companies that may allow for access to sensitive technology. On China’s side, they have the full support of the government in the development and deployment of 5G and other sensitive technologies, while development in the U.S. is run solely by the private sector – putting the U.S. at a distinct disadvantage. China has already committed $400 billion towards development of 5G.
The bottom line implication here is that we could see a world where there are two technological spheres of influence – those who use China’s technological infrastructure and cyber capabilities (restricted speech, monitoring, censorship) versus those who use the United States’ (free and open). In short, the current dispute is about a lot more than just trade.
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You can’t predict how these events will affect the economy or when the next downturn will occur. But the right investment strategy can make a huge difference in preparing your long-term investments for success.
To help you learn more about strategies that cater to different investment objectives, we have created our Dean’s List of Investment Strategies. Our Dean’s List describes five of our investment strategies that are ranked in the top 9% of their respective classes according to Morningstar (as of 6/30/19).2
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Risk #2: Gulf Escalations
Geopolitical risk in the Gulf region is somewhat of an ‘ever-present’ risk, though it passes through varying degrees of cool-warm-hot. Today, we might label the risk as warm, with the conflict in Yemen getting worse and with Iran’s increasing military activity in the Persian Gulf. As the U.S. increases its maximum sanction pressure on Iran, tensions between the two nations continue to bubble, and Iran is feeling the effects on its currency and economy. At worst, the maximum pressure results in a buckling that amounts to full-scale conflict breakout, though we see that risk as low currently. Even still, as the pressure campaign continues, there is increased risk that Iran will break the terms of the nuclear accord with Europe, which might result in some additional escalation or response.
Risk #3: Brexit and Europe Fragmentation
Britain just got a new Prime Minister last week in Conservative Leader Boris Johnson, who has also staked the position as a “Hard Brexiteer.” In his first speech as Prime Minister, Johnson indicated that he would strike a “new deal, a better deal that will maximize the opportunities of Brexit.” How Mr. Johnson’s cabinet will do this deal, however, remains unclear – the European Union has indicated that the terms of the deal are non-negotiable.4
Mr. Johnson has said that if no deal is reached by October 31, then Britain would leave the E.U. anyway under what is known as a hard Brexit. The implication would be Britain leaving the E.U. with no trade or customs mechanisms in place, which could lead to bottlenecks and a potential recession.
Risk #4: Deteriorating Latin America Relations
The past couple of years have brought what we might term a systemic deterioration in the relationship between the United States and Latin American countries. The biggest culprit is the Venezuelan government, whose authoritarian actions have led to the demise of the Venezuelan economy and put stress on other South American countries. Struggling economies in Central American countries have also led to migration patterns that are at the center of the American political debate today, and the U.S. and Mexico currently have a new trade deal that has not been ratified and whose future is uncertain.5
There is no way to know exactly where the market is headed or how these stories will pan out, but finding the right investment strategy can make a huge difference when managing the highs and lows of the market. To help you learn more about strategies that cater to different investment objectives, we have created our Dean’s List of Investment Strategies.6
Our Dean’s List describes five of our investment strategies that are ranked in the top 9% of their respective classes according to Morningstar (as of 6/30/19).7 If you have $500,000 or more to invest and want to learn more about these strategies, click on the link below to see how they could potentially benefit you.
2 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
3 These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance
4 The Wall Street Journal, July 24, 2019. https://www.wsj.com/articles/boris-johnson-picks-his-top-team-for-brexit-battle-11563966841?mod=hp_lead_pos5
5 BlackRock, June 2019. https://www.blackrock.com/corporate/insights/blackrock-investment-institute/interactive-charts/geopolitical-risk-dashboard#risk-indicator
6 ZIM may amend or rescind the “Dean’s List of Investment Strategies” guide for any reason and at ZIM’s discretion.
7 These rankings may not be representative of any one client’s experience. In addition, they are not indicative of future performance
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
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