Investors won’t find ease in global politics


    It’s been pretty long since the world economy truly suffered the way it did from a trade war, like the current one between the US and China. Though it still remains my primary scenario that US and China will find an agreement in December or January.

    If that’s the case, then it will make the world happy again – at least for a period of time. I would not expect the deal to be long-lasting and expect the dispute to return some day.

    The reality is also that an agreement between US and China is not enough to rescue the world from a global economically squeezed situation anymore.

    Since the global financial crisis, the rhetoric from a growing number of political leaders have become tougher. As a consequence, the macro economic thinking has become more domestic-focused and protective.

    The American President Trump is the most profound example. My assessment is that many in the financial markets have for long, believed that the period with Trump would be four years, after which, global life would swing back to “normality”.

    The current discussion about a Trump impeachment inquiry includes the possibility that the President’s future can change.

    Though I’ve noticed how many analysts in the financial markets consider it likely that President Trump will also win the next term.

    Currently, he is behind in polls against leading Democrats, but several analysts don’t trust that even the most likely Democratic candidates can prove to be a strong alternative to Trump.

    Further, I argue that President Trump is very much focused on his approval rates, and they have been rising during the past two years, now standing at 43.5 percent.

    For Trump, this confirms that he is doing the right thing, and acting as his electorate is expecting.

    Even if a trade agreement is settled with China, I expect Trump to continue the tough rhetoric.

    And US is partly right, that the WHO trade agreement is outdated, as it was negotiated in the mid-1990s, so it should be amended to current conditions. This view could also very well be taken over by a possible democratic American president, though delivered with another rhetoric.

    As the outlook for global growth is weak, then I asses that a growing fight for trade and GDP growth is more likely, rather than just smoothly moving back towards a rosy growth environment again.

    This is a true challenge for investors and corporations, because it gets tougher to judge the future political behaviour and how the rhetoric firearms will be used.

    Growing protectionism is an obvious increasing risk, and I am very convinced that the focus on domestic growth will intensify further, though also to grow economic single markets or free trade zones.

    The trade zones/single markets that I consider to be the most important and interesting in total represent 77 percent of global GDP, where I regard the US and China as the world’s two dominant zones/single markets going forward, with the Eurozone as the fading star.
    My primary scenario is that future GDP growth is concentrated on these two leading zones

    when measured by power and size. The Asean Group has the best opportunity for the highest growth, though I do not trust that the CPTPP group of countries (The Comprehensive and Progressive Agreement for Trans-Pacific Partnership) will create the necessary growth momentum as half of CPTPP’s GDP origin from Canada and Japan.

    However, my expectation is that each association/economic zone will try to develop their internal free trade further, and therefore, the various groupings are increasingly interesting, depending on what one as an investor is looking for.

    But one thing seems obvious, to understand and spend time on the US-China development.

    Though for the time being, I do not expect the “world” to improve, meaning that investors and corporations will have to accept the current global political scene as a frame condition.