Forget trade wars and geopolitical tensions, says Fidelity – what investors should really be concerned about is the overly buoyant global economy.
Chemical weapon attacks in Syria, trade wars with China and nuclear tensions on the Korean peninsula may seem important to investors, but they are something of a red herring, says Fidelity.
Instead, the focus should be on the maturing global economic cycle and the extended market cycle across equity and bond indices, says Fidelity International chief investment officer for equities Paras Anand.
"On one level, this explains the recent period of market volatility but this is arguably misleading as it demonstrates, in my view, a misunderstanding of what has driven returns over the past few years," Mr Anand said.
"If you accept that excessively loose monetary policy has largely supported asset prices across the board, then your biggest fear should not be an economic slowdown driven in part by rising geopolitical tensions or a tit for tat trade war between the US and China.
"It is, in fact, a buoyant economy (and a rate of price inflation) which continues to outperform the expectations embedded in the bond market in particular which should be of concern," he said.
Investors should take a more "benign" view of geopolitics, he said – but that should not make people "enthusiastic buyers" of equities.
"The surplus liquidity in the system means that we are unlikely to see a prolonged bear market but the recent volatility that we have endured since the start of 2018 may remain with us," Mr Anand said.
"As we have seen with recent examples of Facebook, WPP and the impact of the high level of corporate activity across many sectors of the market, shares are more likely to be moved by specific events rather than the broader geopolitical or macro environment.
"In most market environment environments, this is normally the case but it is easy to forget when we have been through an extended period where the opposite has been true," he said.
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