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China currency move stokes trade war fire

Daniel Lane

Daniel Lane - Fidelity Personal Investing

Investors the world over would be forgiven for feeling a bit stunned. Two weeks ago the S&P 500 hit fresh highs on the back of a promising start to the US earnings season. A fortnight on and American stocks have recorded their biggest one-day decline so far this year.

China currency move stokes trade war fire

There’s a familiar tit-for-tat pattern emerging, with announcements from both sides of the US-China negotiations spooking global markets.

Last week it was Trump’s plans to slap a 10% tariff on the remaining $300 billion of Chinese imports that aren’t subject to punitive tariffs. And yesterday it was the weakening of the renminbi past the psychologically important threshold of seven per US dollar for the first time since 2008. The President has now labelled China a currency manipulator, suggesting it was deliberately devaluing the renminbi.

Markets have sold off en masse but moderated slightly today. That’s after China’s central bank moved to support the currency by fixing the renminbi’s benchmark exchange rate back on the strong side of seven to the dollar.

A weak renminbi could be good for China’s exporting companies however, a weaker Chinese currency could stem overseas expansion, which had heated up over the past year during the trade dispute.

We’re likely to hear a lot more from both sides over the coming weeks and months but rather than hang on their every word, I think one of the best things we can do now is manage our own actions.

There’s clearly a lot further to go in trade negotiations but, as investors, we simply don’t know what will happen tomorrow and how the rest of the market will react. These are the times gut reactions today can hurt us over the long term so we need to be careful about letting fear and nerves make the decisions for us.

When things are as unpredictable as they are showing themselves to be, it pays to be diversified across asset classes and geographies. Not all markets will be affected equally - and not all recoveries will happen at the same speed or trajectory. If your portfolio has a few different cylinders firing at any one time, there’s no need to make rash judgements.

What’s more, taking money off the table also prevents fund managers from buying into stocks brought down by the whole tide. Remember, even with its geopolitical reach, the trade war won’t affect every company - the same way Brexit won’t. There will be stocks hit by recent events that fund managers will want to buy into. Allowing short term worries to make you sell out ensures they can’t do that on your behalf.

With diversification in mind, Ayesha Akbar, manager of the Fidelity Select 50 Balanced Fund, aims to generate a mix of growth and income over the long term. She does this by holding a range of funds, giving investors access to an extremely diverse network of investment opportunities.

The fund provides instant access to a global range of assets, from equities to bonds, as well as alternative assets like gold and other commodities. Find out more on the manager’s thoughts in our latest Fund Focus interview.

More on Fidelity Select 50 Balanced Fund

Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Select 50 is not a personal recommendation to buy or sell a fund. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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