Fri | Jan 19, 2018

Andre Haughton | The global investment horizon: Our options, future

Published:Monday | January 23, 2017 | 12:00 AM

The following is a contribution ahead of the Jamaica Stock Exchange conference set for The Jamaica Pegasus hotel, New Kingston, between January 24 and 26.

The global capital market remained robust to the global geopolitical occurrences in 2016; Brexit in the United Kingdom, Donald Trump's presidential victory in the United States of America, and the referendum in Italy.

The extended chaos that was expected demonstrated short-term volatility effect without long-term resonance. The movement of long-term capital remained patient, taking a more observant and precautionary approach, which prevented long-term precipitation of negative volatility effects. If contemporary sporadic investors trade for short-term benefit rather than investing in companies for long-run capital gains, anything is possible for the global investment horizon in 2017 and beyond.

Donald Trump's Keynesian-style economics of expansionary fiscal policy will have a positive impact on aggregate demand in the United States and globally, which should spur an increase in global output. It might lead the way for fiscal policy to dominate monetary policy as the ultimate stimulator for economic growth.

Jamaica, without fiscal spending power, should continue to use legislation to increase the possibility of capital expansion for firms. The nation's stock market has improved tremendously over the last year and will continue on the same positive trend in 2017.

To some extent, global investors appear to be developing a preference for equities and credit over bonds and fixed-income assets. Emerging market equities will continue to attract more attention as they are expected to yield higher returns, although might be characterised by more volatility. The future will be tricky for multi-asset funds as investors seek to balance their portfolios by seeking good returns from low-cost and low-volatility instruments.

There is hardly good return without risk. If smart global investors take the same approach as 2016, they will continue to hold their assets throughout volatility periods if the company is long-term viable. Otherwise, investors risk over-diversifying their portfolios to reduce volatility, yielding lower or negative returns.

More global geopolitical risks associated with elections in Germany and France is expected in 2017. If long-term investors, however, continue to display patience in their responses, the impact of these political shocks might not be as severe. Uncertainty surrounding Trumps anti-globalisation suggested policies must be observed with caution. On one hand, it might be good for some industries, but on the other, it might be bad for international trade. The world is becoming more and more indebted to China. Jamaica must figure its way out of debt.