Investors’ concerns during the second half of 2020 will be centered around the U.S. election, China-rest of the world relations, the coronavirus pandemic trajectory and Brexit.
Looking back to day one of 2020, for the first time the media reported an outbreak of viral pneumonia in Wuhan, China.
Fast forward six months and coronavirus has changed the world. Forever.
We’re now in a new era, which will inevitably have potential ramifications on investment decision-making as we enter the second half of this highly atypical year.
As such, as investors, we must ready ourselves for more headwinds which will likely weigh on growth and returns, than tailwinds, which boost growth and help drive positive returns.
To my mind, there are four key headwinds that investors should keep a close eye on in the second half of 2020.
First, how the relationships between China and the rest of the world develop over the next six months.
The principal areas of concern are the ongoing trade tensions with the U.S.; the repercussions from allegations by certain Western leaders in regard to China’s culpability in the coronavirus pandemic; the effect of global condemnation relating to Beijing’s crackdown on Hong Kong’s independence; plus allegations of ‘state-sponsored’ cyber -attacks.
Second, how the relaxing of coronavirus lockdowns and the gradual re-opening of society and economies across the globe could result in a rise of new infections, which could hamper hopes of a rapid, sustainable economic recovery.
Third, the uncertainty stemming from the 2020 U.S. presidential election.
Many see this year’s vote as especially significant as not only will the winner be in charge of the largest economy in the world, they will be in that position as the world economically readapts following the coronavirus crisis.
Fourth, the risk of a no-deal Brexit for the UK, EU and economies around the world is still a key headwind. To date, the UK has not gone back on its threat to walk away without a trade deal in place, in spite of the huge financial disruption as a result of the COVID-19 pandemic.
On the whole, there’s further uncertainty on the cards that may affect global investors.
Nevertheless, there are three key tailwinds.
Number one, governments around the world are willing to provide substantial, often unprecedented, levels of stimulus to bolster economic recovery.
Number two, central banks across the globe have stated they do not believe they have run out of significant ammunition.
Tailwind number three, the ongoing rise of fintech has resulted in an increasing number of people around the world successfully saving and investing for their future at reduced costs.
Furthermore, the Federal Reserve’s previous expansion to its already record stimulus programme on June 16, acts as a ‘backstop’ or ‘floor’ for equities.
This additional support was broadly predicted by the markets. As such, investors who have been closely monitoring the situation have recently been boosting their portfolios as entry points will undoubtedly continue to edge higher moving forward.
The second half of this year will bring about challenges as well as key opportunities. As such, investors should stay invested as history has taught us that markets tend to go up over the long term.
Moreover, investment portfolios must be sufficiently diversified across sectors, asset classes, regions and currencies. This is the best way for investors to make the most of the opportunities and mitigate the risks.
Nigel Green is founder and CEO of deVere Group. One of the world’s largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
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