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Another Brexit deadline

25 June 2020

5 minute read

While the fight against this latest coronavirus has dominated much of the agenda so far this year, there are two issues which are fast making a return. Here, we take a look at the path ahead for US-China tensions and Brexit.

Who's it for? All investors

The value of investments can fall as well as rise. You may get back less than you invest.

What you’ll learn:

  • The latest on US-China trade tensions.
  • What we can expect from the Brexit negotiations.
  • How to invest for the long term.

The fight against this latest coronavirus has dominated much of the agenda so far this year of course. However, two issues are fast making a return as the world economy wakes from its slumber – US-China tensions and Brexit. This week, we take a look at the path ahead for both.

US-China tensions

China’s perceived role in the pandemic has added fuel to an already fairly combustible relationship between the US and China. Until a couple of years ago, this was a relationship characterised by a remarkable degree of co-operation in many areas. How and why this has since soured is not easy to explain. However, somewhere near the heart of this dispute is China’s treatment of intellectual property (IP).

Interestingly, China’s royalty payments for IP have surged over the last couple of decades. The early development trajectories of countries ranging from the US to more recently Korea and Japan are characterised by a willingness to acquire, by fair means or foul, the innovations of others. However, in all of these cases, there came a point when domestically-produced technology became at least as important as that acquired from abroad. At that point, these rapidly developing countries tended to become understandably more interested in protecting the proceeds from home-grown innovation. Many argue that the Chinese economy is more or less at this transition already1.

However, it is at least plausible that we will continue to see a rupture between these two modern superpowers, which will have implications for the world’s growth prospects. The duplicated efforts of both countries will crimp global efficiency. This is likely a game where there are no winners, only those who lose a little less.

Brexit – deal or no-deal (again)?

Among many other things, the pandemic has taken chunks out of an already very challenging negotiating timetable for an orderly exit from the EU. However, a recent (virtual) meeting between UK Prime Minister Boris Johnson and the Presidents of the European Commission and the EU Council, Ursula von der Leyen and Charles Michel, seemed to give the negotiations some much needed impetus. Time is still extremely tight and the suspicion remains that some form of extension would be needed to both arrive at, and ratify, a compromise.

Few who have followed the twists and turns of this saga will retain much faith in their ability to clearly see how it ends. Nonetheless, most commentators are putting together a less ambiguously pro-Brexit UK government with this very tight timetable and assuming the outcome lies somewhere in the range between an exit on World Trade Organisation terms (the UK is out of the single market customs union and with no obligation to align to EU standards) and a slimmed-down trade deal. While some see future upside from such a schism, the shorter term reality is likely to be more disruptive.

Depending on how negotiations play out over the next few months, we should consider the potential for further pressure on the UK economy’s recovery from the pandemic over 2021.

Investment conclusion

The global battle against this latest coronavirus continues to rage. Secondary outbreaks are popping up from Beijing to Houston. The response has improved however, with greater testing and track-and-trace capabilities allowing faster identification and isolation of such outbreaks. Nonetheless, it is a reminder that there are still a number of outstanding issues to solve on the road to full economic recovery. In this context, both Brexit and the trade tensions between the US and China (and others) are likely to represent a further tax on growth in the medium term.

For investors, this seems to complicate the picture further. If a lower trend in global growth is the outcome from all of this, then investors should dial down their expectations of the returns from investing accordingly. Nonetheless, for those on the sidelines with longer term financial goals in mind, from retirement to a deposit for a house, your best tool to achieve these ends is still likely investing in a diversified mix of capital markets assets.

We would always recommend a long-term diversified approach to investing. The Barclays Ready-made Investments are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest across a range of asset classes and regions, offering a globally diversified one-stop solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.

Smart Investor offers a wide range of funds, and our Barclays Funds List may help you to narrow down the wide range available to invest in. These funds are selected by Barclays investment specialists and, based on our research, they’re the funds that have built solid reputations and established sound investment processes.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances. Smart Investor doesn’t offer personal financial advice. If you’re not sure about investing, seek independent advice.

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