A troubled year for markets

Donald Trump © Getty images
Trump’s trade war: politics interfering with economics

Not many investors will feel much richer now than at the end of 2017. A list of global indices reveals little but misery. In sterling terms, a few markets are up (the S&P 500, Brazil and Russia’s RTS index, all by about 4%), but most are not. One of our long-term favourites (for its value), Japan, is down 6%. Most European markets are off around 10% with a few notable exceptions (Ireland is down 20% and Germany 15%).

The tech bubble is in the middle of popping, while the bitcoin bubble (the most perfect speculative bubble most of us will see in our lifetimes) has definitely popped. All this shouldn’t come as a surprise to most of our readers: we have been worrying about overvaluation in global markets and about the effects of the great quantitative easing (QE) unwind on share prices for some time, as have many of the investing professionals we talk to.

Look at our roundtable from January, and you will find Ruffer’s Steve Russell noting that “our whole market system is now predicated on zero interest rates”. What, he asked, happens when that changes? In 2018, we began to find out (markets fall). We are also learning about what happens when politics interferes with economics, in terms of a backlash against both free trade and the power of big corporations.

We have long said that the corporate world would need to try harder – on its treatment of both workers and national governments – if it didn’t want to be reformed before it got around to reforming itself. That is starting to happen – witness discussions about new anti-trust laws (more in next week’s issue) and the fall from favour of the tech monopolies. 2018 has seen the start of a period of enormous change – and not all in a bad way at all.

The swinging of the pendulum in shifting some power back to labour and away from big company executives is long overdue (although read Matthew Lynn in this issue on how trying to fix it can make it worse). Falling stocks can be seen as good news too – assuming you are investing for the long run, and believe that the best indicator of future asset returns is the price you pay for that asset in the first place, how can lower prices be all bad?

There’s plenty of positivity at this year’s roundtable too. Have a read for not just a fascinating discussion on all things market orientated, but good fund and stock tips too. Next week we will look more at what we expect from next year, and how you can navigate it in such a way as to keep your capital at least intact.

In the meantime we hope you find some distraction in our last-minute gift ideas and perhaps the property section. You haven’t quite time to move into a new place with a fabulous fireplace before the 25th. But – given the way the UK property market is currently moving (mostly sideways or down) – there’s plenty of scope to be in a good value one for next year. A very happy Christmas to all our readers.