Rainbow over Hong Kong city skyline

Look on the bright side

Eric Idles’ song ‘Always look on the bright side of life’ is a nod towards the stoicism and Britain’s “stiff upper lip” spirit when faced with adversity. It’s worth remember that when things look darkest, there’s almost always a silver lining somewhere – you just have to look for it.

There’s plenty happening in the world to make us feel anxious. And we can’t forget how bleak things are, or may be about to come, as with every passing day the headlines shout about economic turmoil, not to mention the war in Ukraine and increasing tensions over Taiwan.

With volatile markets, soaring inflation, and industrial unrest, it may feel like things are bad and likely to get worse.

Things aren’t as bad as many would have you believe

US has proven a worthy ally to Taiwan

There’s a long history of tension between China and Taiwan and the global ramifications of this are complicated.

In short, if China took control of Taiwan, this would disrupt the US geographical security concept known as the “island chain strategy”. Essentially, a barrier of islands between the Chinese mainland and the Western Pacific Ocean.

So, if China controlled Taiwan, it could then control Asia’s major shipping routes.

While Nancy Pelosi’s visit to Taiwan gave Beijing an opportunity to divert the public’s attention, and Beijing’s largest-ever military drills around the island seemed to be scaling down, Taiwan’s president Tsai Ing-wen said that China’s threat of force was undiminished.

The risk of war over Taiwan is real, but the probability is seemingly low. The Chinese generally prefer stable more predictable conditions, especially now – with economic challenges, pandemic challenges, and the CCP’s November elections.

Beijing was clearly unhappy about Pelosi’s visit; however, the Taiwanese people took it in their stride.

Following another US congressional delegation visit, Taiwan’s Foreign Affairs Ministry said: “At a time when China continues to raise regional tensions, the US Congress is once again organising a heavyweight delegation to Taiwan to show its undaunted friendship and demonstrate strong US support for the island.”

A more realistic outcome from all of this is that the Chinese enlarged military presence in the area will become the ‘new norm’, along with all the issues that will bring.

Inflation may be peaking

Using the United Kingdom as an example – and perhaps the economically worst performing country in the G7 – the petrol price is following the oil price down. This has raised hope that inflation may have reached its peak or will do soon.

While many prices have risen dramatically, some haven’t, most notably (and perhaps surprisingly) alcohol.

Clearly, inflation is deeply unpopular and significantly wealth eroding, which means that tolerating it isn’t a viable strategy for either the British government or the Bank of England.

Interest rates may not soar as high as feared

Interest rates are rising, although they appear not to be heading towards levels above 5%, which had been feared. For now, at least.

Most British homeowners are on fixed-rate mortgages and, actually, more Britons own their homes outright than pay mortgages. In the shorter term, at least, this also helps to reduce the effect of higher interest rates on borrowers.

UK unemployment is at the lowest rate for 50 years

Unlike previous pre-recession periods, unemployment is at the lowest rate for 50 years. It is also exceeded by the number of vacancies.

In 1976, the newly appointed prime minister, James Callaghan, addressed the Labour Party Conference stating: “We used to think that you could spend our way out of recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists and in so far as it did exist, it only worked on each occasion by injecting a bigger dose of inflation into the economy followed by a higher level of unemployment as the next step.”

This speech was an important turning point and marked the time that the British government stopped claiming it could protect the population from the global economic cycle. Almost 50 years on, maybe the next prime minister will again put an end to the myth that they can stop what is already in progress.

Stock markets are rising

Stock markets are rising, and investors are beginning to recover losses incurred in the first half of the year. Although we’re not out of the woods yet, the markets seem to be predicting a better 2023.

As famously bullish founder and portfolio manager of Lindsell Train, Nick Trian, says: “I am habitually bullish because I know that stock markets go up in three years out of four.”

Top tips for unsettling times

To help you keep things in perspective in these challenging times, here are seven important tips to bear in mind:

  1. Accept that markets are uncertain – a well-diversified portfolio protects you from any single area of the markets that is experiencing particular pressures. Since we recommend diversifying your investments, your portfolio will probably be performing better than the headlines might suggest.
  2. Try to resist checking your portfolio too often. Instead of getting caught up in habitually checking your investments, invest your time in more important things in your life. Checking once or twice a year is more than enough, although we understand that takes quite a lot of willpower!
  3. Accept that you can’t time when you should be in or out of the market – even professional fund managers don’t attempt to time the markets in this way. Accept this fact and investing will feel far less stressful.
  4. If markets have fallen, remember that you still own everything you did before. This means that you still hold the same number of shares in the same companies, as well as the same bonds holdings.
  5. Crucially, a fall does not turn into a loss unless you sell your investments at the wrong time. If you don’t need the money, why sell?
  6. When your investment portfolio was established, your adviser will have established the right balance of investments to reflect your attitude to risk and the growth you needed to attain your financial goals. A fall in the markets does not change this.
  7. Your adviser is always here to support you. Anytime you need some reassurance about where things are at and what it means for you, get in touch and we’ll be happy to help.

Get in touch

We specialise in building, managing, and preserving the wealth of Hong Kong’s international community and can help ensure you make all the right steps to protect and grow your wealth.

If you would like to discuss the current state of the world or simply want some reassurance that you are on track to meet your long-term goals, we can help. Email info@bmpwealth.com or call +852 3975 2878.

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