A number of scenarios could play out in the months to come between the world’s economic leaders. Trump’s inauguration on Friday coupled with Theresa May’s tone of a Hard Brexit when article 50 is triggered are the current focal points as to how trade deals and political relationships will be sustained and/or shaped from hereon.
Donald Trump has come out in full force in recent weeks to emphasise US based production as a requirement for local- and foreign-based manufacturers wanting to import business into the US, without facing extortionate border tax tariffs. Yet, the President-elect has also counterintuitively hinted at the possibility of a free trade deal with the UK, once Brexit takes effect.
Who does such a strategic move benefit?
The business-minded mentality the President-elect is undertaking at the expense of historical political correctness will surely benefit the US to the detriment of many global relationships.
The return of protectionist stances in global politics in 2016 has carried over into the New Year and once Brexit is triggered, it may not be long before other member states in the European Union, notably France and the Netherlands, follow suit, should anti-establishment anti-EU governments win the general elections scheduled this year.
The pro-Russia, anti-EU tone Donald Trump has portrayed coupled with the increased tensions triggered with China as a result of engaging in opening talks with Taiwan, by answering the prime minister’s congratulatory call (China and Taiwan are technically still at war), risks adding global worries.
Furthermore the outgoing Obama administration’s claims that Russia meddled in the US elections, has sparked speculation that the hostility seen by the US is at its highest since the end of the Cold War.
Lifted sanctions on Russia by the Trump administration, regardless of the Obama administration’s election hacking claims will not be met lightly by the European Union, who stood firmly against Russia’s actions in the Ukraine conflict of Crimea back in 2014. Yet, the UK exiting the
Yet, the UK exiting the union, risks further weakening the EU’s global powerhouse reputation in the eyes of Russia, whose actions could undermine imposed sanctions and increase tensions with the EU bloc.
Upcoming election favourites in France also hold a pro-Russia stance, with favourites Francois Fillon as well as Marine Le Pen both in favour of establishing closer ties to the Kremlin state, with the latter even going as far as recognising Crimea as part of Russia if elected. This will be positive news to Russia in its bid to reestablish itself as a top global leader but a desperate move by an ever weakening European Union in its members’ bids to reestablish policy measures supportive for domestic growth.
A UK-US free trade pact agreement could well elicit the beginning of the end of the EU bloc, as custom tariffs with the UK, higher tariffs with the US and a resulting lower place in the trade pecking order, has the recipe to trigger further unrest and underperformance pressures on an already fragile European Union.
What opportunities could present themselves in such a scenario?
I would invest in stable utility companies whilst markets bear the volatility to come. Water funds have had stable yearly historic returns as the resource becomes ever more required as the global population increases.
Alternatively, for higher risk-adjusted returns, positions in companies in the Arms industry notably within Military & Defense sectors could see increased production activity come out of heightened global tensions that may arise as a result of the shift in political relationships and the political environment. Nonetheless informed and calculated investment decisions should be undertaken before any course of action.
This article was issued by Mathieu Ganado, Junior Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd. has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.