Editor's letter

Politics has made a rude re-entry into investing

Fund managers used to boast they paid no attention to politics. That, says Merryn Somerset Webb, is no longer the case.

926-CoL-634

There is lots of value in UK equities

I have lost count of the number of fund managers who have told me over the last decade they don't pay attention to governments. In a globalised economy, political grandstanding just doesn't matter, was their view. Well, it matters now.

Scroll through my inbox and you'll find more emails devoted to Brexit, Trump, trade and a Corbyn government than you will on earnings forecasts. Politics has made a rather rude re-entry into the world of investing. So Brexit and Corbyn are sinking the UK stockmarket; fear of regulation is killing equities in the tech sector; and fear of tariffs ripping up supply chains is doing for everything else.

From their peak in September the FAANGs have lost $1trn of market cap. Nasty. Elsewhere the Shanghai Composite is down 30% from its peak; Italy is off 25% and the Dax has tumbled by more than 20%. Deutsche Bank says that 90% of the 70 asset classes it tracks were in the red by mid-November. The previous high? Eighty-four percent in 1920.

It's also worth mentioning that in the UK, buy-to-let property is also on its way out. Since the stamp-duty changes and cuts to mortgage interest relief, the number of landlords is down 120,000. This makes sense: if you can't rely on making serious capital gains any more (and you can't), the sums just don't add up.

You'll be tearing your hair out by now. What can you do? In the past the correct answer (not always the one we have given) has been to buy on the dips religiously. This year that has not been a good strategy. For it to become one again you have to believe two things.

First, that there is a global downturn on the way; second, that central banks will react to it with another burst of market-boosting stimulus (see Charles Bean's remarks in this issue of the magazine). The former is probably a given. The latter is not: central bankers could come over all responsible and stick with their "normalisation" attempts.

The only thing equity investors can do is to look for value. After all, the price at which you buy something is the only real determinant of your long-term return from it. So look at UK equities (lots of value) and consider Latin America. Use fund managers that have some focus on value, such as Schroders, Kennox, Merian and Oldfield Partners.

Finally, if you want to talk about all this more, go to Ebay and you can bid to have lunch with me (the money raised goes to UK charity Habitat for Humanity). This year I will be joined by Claer Barrett, personal finance editor of the Financial Times. We won't be able to bring back the great quantitative easing-driven "everything-bubble" of the last decade or roll back buy-to-let legislation for you. But we can have a stab at answering most of your questions about what will happen to your money next.

Recommended

Inflation is the easiest way out of this – just don’t expect politicians to admit it
Inflation

Inflation is the easiest way out of this – just don’t expect politicians to admit it

The UK government borrowed £34.1bn in December, a record amount for that month. Britain's debt pile now amounts to 100% of GDP. How are we going to pa…
22 Jan 2021
Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
A beginner’s guide to inflation – everything you need to know
Inflation

A beginner’s guide to inflation – everything you need to know

One of the most frequently mentioned topics in the news these days is inflation. But what exactly is inflation and how does it affect the economy and …
18 Jan 2021
Why the City should create a single financial market with the Swiss
Economy

Why the City should create a single financial market with the Swiss

A tie-up between London and Zurich, two global financial centres, could pay huge dividends for both, says Matthew Lynn.
17 Jan 2021

Most Popular

The FTSE 100 is set for a makeover with an influx of new tech stocks
UK stockmarkets

The FTSE 100 is set for a makeover with an influx of new tech stocks

The FTSE 100 – the dullest index in the world – is about to reinvent itself as a host of new firms list on the market. The change is long overdue, say…
24 Jan 2021
Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Think Tesla is a bubble? This might be the best way to bet on it bursting
Oil

Think Tesla is a bubble? This might be the best way to bet on it bursting

The huge rise in Tesla’s share price means that, by market value, it’s now the sixth-largest company in the US and and the world’s biggest car-maker. …
25 Jan 2021