Four global hotspots to watch

Jul 2nd, 2019 | By | Category: ETF and Index News

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Christopher Dhanraj, Head of ETF Investment Strategy, BlackRock, discusses the key international events the iShares Investment Strategy team are tracking in July.

Christopher Dhanraj, Head of ETF Investment Strategy, BlackRock.

Christopher Dhanraj, Head of ETF Investment Strategy, BlackRock.

International events seem to matter more than ever for investors. From trade tensions to the conflict in the Gulf to increasing populism, geopolitical events have at times roiled the markets in recent years. But geopolitical uncertainty is no reason to avoid international investing, which offers access to world-class companies, potential growth, and diversification for a portfolio.

Investors certainly have had their hands full in tracking the key events that can impact portfolios.  A helpful resource that my colleagues at the BlackRock Investment Institute offer is the geopolitical risk dashboard, which measures and tracks the risks of major geopolitical events (see Chart 1).

Source: BlackRock.

From the standpoint of the iShares Investment Strategy team, here are the key events we are tracking:

  • China trade tensions

The results of the “extended meeting” between US President Trump and his Chinese counterpart Xi Jinping on 28 June at the G-20 summit will likely take some time for the markets to fully digest. Given the recently contentious negotiations between the two countries, investors are hopeful this meeting will set a path towards a future deal.  If not, President Trump has threatened tariffs on $300 billion of additional Chinese imports. Lack of a final trade deal may continue to drive uncertainty globally.

  • Iran

Tensions with Iran ratcheted up even further after the US accused Iran of downing a $130m drone over international Gulf airspace last week.  This followed the US accusing Iran of attacking two tankers in the Gulf of Oman the week prior. President Trump has stepped up the economic-pressure on the country and signed an order authorizing new sanctions on the supreme leader’s office and top officers in the Islamic Revolutionary Guard Corps. The market feedback loop has extended beyond the Middle East to commodities – the price of WTI oil is up 16% in the past two weeks since the tanker incident, as of 26 June 2019, according to Bloomberg.

  • United Kingdom

Theresa May officially stepped down as leader of the Conservative Party on 7 June. She will remain as PM until her successor is chosen. The list of candidates has now been whittled down to the final two: Boris Johnson and Jeremy Hunt. The new leader will be announced the week of 22 July. Initially, front-runner Johnson threatened a no-deal Brexit if necessary while Hunt has signaled a more flexible approach. However, recently Johnson’s comments around Brexit and the logistics of leaving without a deal have left many confused as to his full understanding of how the process works or where he really stands with regards to leaving the EU. Watch this space as election uncertainty may create volatility for the region in the next few months.

RELATED FUNDS

iShares MSCI China ETF (MCHI US); 0.59%
iShares MSCI Saudi Arabia ETF (KSA US)
; 0.74%
iShares MSCI United Kingdom (EWU US)
; 0.48%
iShares MSCI Eurozone ETF (EZU US)
; 0.48%
iShares MSCI Mexico ETF (EWW US)
; 0.48%

  • Mexico

A last-minute deal on Friday 7 June prevented the US from imposing tariffs on all Mexican exports to the US worth ~$350 billion. In exchange for removing the tariffs, Mexico agreed to increase enforcement to stop illegal migration and to expand the “Remain in Mexico” plan for asylum seekers.  The measures taken by Mexico will be evaluated in mid-July.  Terms of additional provisions will be finalized in 90 days from the deal. While Trump has bipartisan support for the China trade negotiations that was not the case with the tariffs threatened on Mexico, whereby Trump threatened to implement an economic lever in response to an unrelated foreign policy goal.

(The views expressed here are those of the author and do not necessarily reflect those of ETF Strategy.)

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