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Where in the world to invest?

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

In an update to its half-yearly World Economic Outlook, the International Monetary Fund (IMF) has downgraded its forecast for global growth for the rest of this year and the next.

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The organisation, that works to foster global monetary co-operation, has revised its forecast for global growth to 3.2% in 2019, which is 0.1% lower than envisaged in April. Forecast growth for 2020 was also cut by 0.1% to 3.5%.

As Boris Johnson starts his first full day as Prime Minister today, promising a ‘no ifs, no buts’ exit from the European Union on 31 October, a no-deal Brexit is one of the chief threats the IMF has identified to hinder world growth.

The other is US trade policy, with the fund expecting emerging economies like China to lose out more than the US. Donald Trump’s belief that the US will win the trade war against China is supported by the fund’s latest country-by-country breakdown. Here the IMF has upgraded its forecast for US growth this year from 2.3% to 2.6%, while China’s has been downgraded from 6.3% to 6.2%.

The IMF said “The principal risk factor to the global economy is that adverse developments - including further US-China tariffs, US auto tariffs or a no-deal Brexit - sap confidence, weaken investment, dislocate local supply chains and severely slow global growth below the baseline”.

It’s been said many times that markets hate uncertainty and it is the uncertainty over the outcome of Brexit, the US/China trade war and recent tensions in the Middle East that are causing investors to wonder whether the current bull run is close to its end.

The rise in the price of gold this year indicates some investors have already parked their money in the precious metal while they await the next clues from the market. Gold hit a six-year high this week, but it’s not just the geo-political tensions that’s increasing its appeal.

Next week the Federal Reserve meet to discuss interest rates and it’s widely expected Fed Chairman Jerome Powell will announce a cut of 0.25%, possibly even 0.5%. This would be the first cut in more than a decade and is in stark contrast to the beginning of the year when markets were expecting rates to rise.

The prospect of a cut in US rates, which would weaken the dollar, has boosted the appeal of gold. With gold paying no income, it becomes more attractive when the interest rate on cash deposits goes down. A weaker dollar would also make gold cheaper for investors in key markets such as China and India as it is priced in dollars.

So with continued uncertainty around the world, where should investors be looking at the moment? A good starting point is the latest Investment Outlook report by Fidelity’s Tom Stevenson. Published on 10 July with a live Q&A webcast with investors, the report outlines Tom’s view on the prospects for the next 12 months.

In this latest issue, Tom’s view on the main asset classes and geographical regions remains unchanged, with a neutral stance on shares, bonds and commodities.

His position on the main geographical regions in the equity market is also unchanged with a neutral view on the US and Asia Pacific ex-Japan. He holds a positive view on the UK, Europe and Japan, where in his opinion a negative outlook has been priced into valuations already.

Of course a global fund removes the hard task of deciding which world region to opt for as you’re leaving that choice to an expert. In some cases the manager of a global fund will be pretty agnostic on how the portfolio is spread geographically, choosing companies purely on the basis of their future prospects rather than the country where they are listed.

In the global sector of the Select 50 you’ll find funds like the Fidelity Global Dividend Fund which invests in companies with a history of consistently paying dividends, while the ever-popular Rathbone Global Opportunities Fund currently favours US companies across a number of sectors such as Amazon, Adobe and PayPal.

For those interested in gold, my colleague Emma-Lou Montgomery recently caught up with George Cheveley, manager of the Investec Global Gold Fund. Gold is also the subject of this week’s MoneyTalk Podcast.

More on the Investment Outlook

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. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. 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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