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In the current inter-linked global financial system, you cannot invest in isolation without considering the economic developments at the global arena. Returns on your investment are not only determined by economic factors within your local market, but also by their interactions with trends in the international markets. In that regard keeping in touch with the rest of the world and being updated on a regular basis is a key investment strategy in our world today.
Among the top global trends affecting how your investment portfolio will perform is the upcoming United States of America presidential elections. It is said that whoever occupies the White House does not affect your investment and therefore you should not be worried about the elections. However, the fact of the matter is that the process leading to the election of a new president always results in market volatility and hence it has a direct impact on your investment portfolio. The effects from the elections are in most cases short-lived since after the elections everyone goes back to their normal lives and he markets stabilize thereafter.
This year’s elections are however different and they may have longer implications to your investment decisions going forward. If Donald Trump wins the elections, many investors fear that he might enforce extreme international trade deals changes with the rest of the world especially with China. These will have a ripple effect to other countries since US being the global super power; a change in its trade policies affects many other economies around the world. On the other hand, if Hillary Clinton wins the elections, investors feel that she is open to international trade deals and relationships with other global economic power houses will not be tampered with; hence maintaining stability in capital flows and foreign direct investments.
The other major global economic trend to watch is the unfolding in the European Union after the United Kingdom voted to leave the economic union last month in June 23rd. The Brexit vote had started generating bad blood between Britain and the rest of the European Union countries; with the former vowing not to support Britain at all in case they face any huddles after the exit. The remaining EU countries who were all opposed to the exit vote assumed that the exit of Britain would not affect them in any away. However as Anthony Di Maggio, an analyst from SternOptions.com notes, “Brexit vote will have a significant financial impact to the European Union since the United Kingdom was one of the largest contributors to the EU’s budget.” Key economic decision makers from across the world including central bank governors are still monitoring the progress in the European Union to see how far it will affect their own local economies and prepare to absorb the shocks.
The US is contemplating an increase in interest rates as the US economy growth becomes more stable and predictable. If the interest rates rise, we then expect more investors to move their money back home from the developing economies where they invested in search of higher returns than what they could get back in the US. As capital flows change their course to the US, the developing markets will face high capital flight as money supply increases in the US. This will then trigger inflationary pressure in the US and potentially result to a depreciation of the dollar. The dollar has been strengthening against other major world currencies as its demand increased due to the speculations that the interest rates will be raised. Following the Fed decision on the interest rates is therefore among the top trends being watched by investors in order for them to decide where to invest their money and how to distribute it within their investment portfolio.
A t the beginning of the year China rebalanced its economy and restructured it to focus more on consumption as compared to being export oriented. Although, the effect was highly felt at the beginning of the year and them got eclipsed by other major economic trends globally, the long-term significance of the move made by China cannot be overlooked. As China boosts its consumption, investments in fast moving consumer goods for the export market to China will be a strategic move in targeting the more than 1 billion people living in China.