4 December 2017

One year of Donald Trump and a wobble in Chinese markets

It has been a case of more of the same for the year as equity markets mostly edged higher in November.

There have been two developments that have caught my eye and may yet prove to be a threat to the current bull market.

Firstly, Chinese markets came under pressure in November as authorities moved to tighten regulation in asset management. Chinese corporate bonds have been hit in particular and there is a risk here that the current wobble escalates into wider credit tightening. Such a squeeze is the last thing that Chinese authorities want to cause and they have been skilful in managing the situation so far, but this remains a risk worth watching.

Secondly, volatility has picked-up in technology assets, the sector that has been at the forefront of this year’s market strength. Cryptocurrency, specifically Bitcoin has been stealing the headlines, having risen over 900% this year, giving the currency a greater paper value than corporate stalwarts such as PepsiCo, Boeing and McDonald’s by the Wall Street Journal’s numbers. Given the current level of retail and leveraged investment in such assets, it is worrying to consider the effect that any reversal in this extraordinary run would have on investor confidence.

Donald Trump recently passed his one year anniversary as President and, while he may not have built a wall, the US economy has just delivered its best quarter of GDP growth since 2014 and this may have been stronger still if it were not for a brutal hurricane season. Recent Chinese and European indicators have been similarly positive and the ongoing strength of commodity prices as we head into the winter months again paints a relatively optimistic picture of global economic conditions. Valuations in the majority of asset classes remain historically high, supported by ongoing positive economic momentum and accommodative central bankers. For the time being, these remain the central themes underpinning markets.

Fred Mahon managed JM Finn’s Coleman Street Investments Service.

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