Brian Spence
The threat of global trade wars may not seem to have much to do with your property investments, yet actually these macroeconomic risks should make up a big part of your thinking on risk management.
The past few years have certainly been a wild ride in geopolitical terms, and the tumult shows no sign of abating. And, in today’s globalised world, even faraway developments have knock-on effects we all must endure. This means having a global view of your investments is vital.
As part of his “America first” agenda, President Donald Trump recently announced hefty tariffs on steel and aluminium imports from around the world in a highly populist – and highly controversial – move intended to boost American industry. The responses from allies like the European Union and Canada have been ones of outrage, but it is the implications of a breach in relations between China and the US which are perhaps most worrying.
Many fear we have seen “first blood” drawn in a global trade war that could plunge the world into recession. But even if this disaster is averted and the likelier scenario comes to pass, which is that a managed trade deal is struck between the US and China, the impact on the global economy could still be very negative indeed.
Knock-on effects
Such a “halfway house” deal would likely see the US and Canada putting things like voluntary export restraints aside, drawing investment from weaker countries so that rapid increases in poverty and tensions can only result.
Perhaps more worrying, is the way that confidence in the global trading system will have been eroded. The diplomatic fumbling we’ve seen in the past few months have presaged a world mired in tit-for-tat trade policy actions. In a worst-case scenario, the absence of a stable and predictable trading system will mean the world of investments collapses.
To give just two figures to conjure with, some predict that returning to old-style tariffs could see trade plummet by 60 per cent and the global economy retreat by close to 2.5 per cent - and that when many countries are still recovering from the global financial crisis a decade ago.
The ramifications of a trade war will be global, but they will also be local. This is because so much of Southeast Asian nations’ economies are tied up with the fortunes of China.
As I’ve written before, Viet Nam has become a powerhouse of technology manufacturing and exports (led by pioneers like South Korea and Taiwan). Yet much of these are "intermediate goods" finished in China before shipping to places like the US, meaning that declining exports from there could be bad news for us here too. In economics, as elsewhere, it is the knock-on effects one has to be on guard for. If this country’s explosive growth suffers a serious setback then all kinds of assets could be affected – including property.
Overexposure to property
I recently argued that the Vietnamese property market was overheated, and if that turns out to be true then a lot of investors could be heading for a serious fall. Many people are “overweight” property in the believe that this is a safe investment that only ever goes up. This, of course, isn’t true and in a tough property market you could find your money tied up for quite some time – and losing money if inflation is also accelerating.
We can’t predict the future, but we can prepare for various likely scenarios and ensure that we have sufficient downside protection in place. Diversifying your investments, so that you own a mixture of assets that perform in different ways, is the best way to decrease your risk exposure and insulate it from the shocks that keep on coming thick and fast.
* Brian Spence is managing partner of S&P Investments. He has over 35 years of experience in the UK financial services industry as an investment manager, financial planner and M&A specialist. He is a regular contributor to the UK financial press and has a deep understanding of the financial services community. Brian’s column will reflect on all the challenges and opportunities within the Vietnamese market, bringing a fresh perspective to today’s hottest issues. The columnist’s email address is brian@sandpinvestments.com.