There are two primary reasons lying behind recent unsettled conditions in markets – the first being the trend towards higher interest rates, particularly in the USA, where a series of increases are anticipated over the next 18 months or so. This in turn is being driven by the need to avoid overheating in the US economy where company profits and overall economic growth are generally moving ahead. Similar trends are evident in other economies and in the UK, another small rate increase is considered quite likely in the first half of the year.

The second being an increase in protectionism, which is altogether more concerning. The US runs a significant global trade deficit and is currently in the process of erecting tariff barriers which are of course being responded to in China, for example, by the erection of tariffs against certain US products. Should this trend become globally significant the risk is that levels of trade and investment will slow, with damaging consequences. It is for this reason in particular that equity markets have been uncertain in the last few weeks.

While further escalation of so called “trade wars” could run unchecked, our current thinking is that a better way forward will be found and that for medium and long term investors, well balanced sensibly diversified portfolios continue to hold good prospects.