After RBS recently advised its customers to “sell everything”, we take a look at the state of the global economy.
In a note to its clients, RBS said “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.” Strong words, but is there really a need to panic?
Global debt levels are high, the Chinese economy is slowing and energy markets are struggling to cope with the slowing growth in demand for oil. The world’s two largest economies, China and the US, are heading in opposite directions. China’s spending on infrastructure, extending credit to regional and strategic neighbours, and the development of a new Silk Road from China to the Middle East (via India) has accumulated huge debt. Meanwhile, US rates are increasing with the dollar already strong. The situation is precarious and could lead to worrying circumstances.
The UK and the US
The reluctance to increase rates in the UK and US shows the cautiousness being displayed, and it could be that policy makers eventually regret this decision. Both economies are in a good state and Europe is gradually showing signs of improvement. While global growth is slowing, it is still progressing at around 2.7% - 2.9%. China’s economy is slowing but is still growing significantly.
The amount of debt, coupled with the slowing rate of growth is a cause of concern, however the economic backdrop is by no means disastrous. Whatever happens in 2016 the reasons for making, maintaining and keeping your investments need to be related to the ultimate aim that you have for those investments.
Long Term Aims
We would rarely recommend that clients attempt to “call the market” by switching all of their assets between cash, equities and/or bonds on a wholesale basis. Arguably, this is a riskier position than maintaining any existing holdings and attempting to ride through any short term volatility. If you have a long term aim for your investment to provide you with income or growth or a combination of both, there have been many articles published and research made available to suggest that staying invested beats trading - particularly if the latter means that you miss the best trading days.
So by all means review your strategy, review your portfolio and review your aims, needs and wants for 2016. And of course, continue to seek and take professional advice where appropriate.