At the end of the year, the world is in a very bad state indeed. Russia's war of aggression in Ukraine continues unabated. The international community has failed to calm the conflict in the Middle East. The situation in the Gaza Strip remains precarious. Despite a fragile ceasefire, Israel is at war with Hezbollah, and therefore indirectly with Iran. A Turkish-backed terrorist militia HTS is taking power in Syria.
In South Korea, there is an attempted coup by the incumbent president. Meanwhile, the Chinese are making new threatening gestures towards Taiwan, and in Europe both France and Germany are barely governable. And in the United States, we're looking at a second Donald Trump presidency, with geopolitical consequences that are largely incalculable. It’s undeniable that the geopolitical risks at present are particularly high. Against this backdrop, a high gold price seems very reasonable.
In comparison, America's economic policy looks almost predictable. In the past few weeks, President Trump has openly stated that “tariffs” is his favourite word. Indeed, he recently went further, stressing that he would also use tariffs to exert pressure in purely political issues. This fundamentally calls into question the international division of labour that has underpinned much of our prosperity in recent decades. And tariffs of course also mean higher prices, putting further obstacles in the way of central banks.
Against this backdrop, we've concluded that we should withdraw our recommendation to invest more heavily in emerging market equities and instead advise taking profits on these positions. Emerging economies would likely be the main victims of a flare-up in any trade dispute and, no doubt, their currencies wouldn’t be spared either.
That said, we can't simply lose hope for the future. After all, there are a growing number of signs that the Chinese government is now willing to tackle the economic crisis. Next spring, Germany at least is expected to have a functioning government again. Economically, this should help the eurozone to regain momentum. And stubbornly high core inflation in the USA and Europe should continue to see a gradual decline. So on the economy, we remain moderately optimistic.
For our investment strategy, it means we're sticking close to our chosen strategy at the start of the year, because increased risks suggest you don’t know when and where they will materialize. At the same time, and despite the current gloomy forecasts, we may also see some positive surprises. And let’s not forget – our investment strategy and most investors' investment horizons are longer than the next term of any elected president.
