Knowledge and Insight - Global economy

Emerging markets (EMs) threw a ‘taper tantrum’ in 2013 when the US Federal Reserve (Fed) mentioned the idea of gradually reducing its quantitative easing programme. Bond yields increased dramatically and equities suffered as global investors lost their appetite for risk and began to withdraw their money. 

Over the past few years, the largest stock market falls have been caused by concerns that China’s fast-paced economic growth could suffer a sharp slowdown. This matters for investors everywhere, given widespread predictions that China will overtake the US as the world’s most important economy. Fortunately, we do not see a slowdown in China as a significant threat for 2018.

Political uncertainty has dominated global events over the past couple of years. Surprise voting patterns have delivered Brexit and President Trump followed by an indecisive UK general election result. A minority government is now negotiating the terms of the divorce from the European Union (EU).

Africa has long been a continent of unfulfilled promise but is it poised to finally become the economic force it wants to be? Investment in infrastructure like railways, roads and ports could light the touchpaper to a brighter future.

Investors today are paying a relatively high price for domestically focused UK companies compared with their multinational peers, which seems counter-intuitive given Brexit uncertainty. For investors, this divergence is creating both opportunities and challenges, which are the focus of our lead article “Digging below the surface of UK indices".

The power of increments: small changes over a long time.

Quantitative easing and low interest rates may have helped restore economic stability, but they have failed to deliver meaningful growth. A growing number of economists and policymakers are blaming demographics — we are having too few babies and living too long.

We are hearing increasing calls that ‘Abenomics’ — Japan’s Prime Minister Shinzo Abe’s strategy for economic revival — has failed. We wish to challenge those voices.

With all the major regions of the global economy growing in synch, investors are shrugging off political uncertainty. Equities have been buoyant, particularly in the US technology sector, where rising valuations are the focus of our lead article “Great tech-spectations”.