Globalisation risks for investors #investments
Globalisation has to some extent brought us prosperity but it has also brought us cartels and monopolies. Some of these companies have grown so big through the spread of globalisation that they are now very difficult to challenge and so have a virtual monopoly. Facebook, for example, has little competition. There are alternatives in China like QQ but in the western world, Facebook has the power to dominate the market.
Politicians understand the power of these globalised companies and pander to them to get investment. In reality, investment in Britain is simply selling off another chunk of our national wealth. Virtually every hospital in the country is now in debt because of private finance deals. Once powerful British banks are now bit players in a global power game. Even the great United States was said to be bankrupt after the credit crisis following the collapse of Lehman Brothers. However, the skyline of London continues to change as increasingly awful new buildings stretch into the sky. These eyesores are investments for rich overseas investors and many will never be used. If the population of London continues to expand they will need more than a congestion charge, they might need to ban private cars.
Predicting the future
For the investor trying to predict the future, we can only evaluate risks. One risk we can be fairly certain of is that the UK will leave the EU. That could mean investors panicking and causing a stock market crash yet again. We have a couple of years to assess what is likely to happen. Will the pound recover in those 2 years and then crash again when we really Brexit? I’m also watching for signs of an OPEC deal that will send the oil price above $50 a barrel. Interest rates also affect the globalisation of trade and an interest rate rise in the US could be the beginning of higher interest rates across the world. Higher interest rates could mean pension funds putting more money into government bonds and less into the world’s stock markets. Higher interest rates would also benefit banks.
Reacting to change
Investors need to be fairly pragmatic and react swiftly to change. I suspect that pharmaceuticals that are doing well because of the lower value of the pound could see share price falls as the pound regains value. Then big pharma could be a good investment a second time around if the real Brexit trashes the value of the pound again. Brexit part two is probably 2 years away but we have to prepare now. The market risks are often because of conflict overseas but the risks now are political and home-grown. There is uncertainly in the US as their presidential election nears and uncertainty in the UK as our political parties move in new directions. Europe has continuing economic problems too. Investors are looking for safety and better returns. The big companies that make up the FTSE 100 seem to be safer, particularly those that are part of the globalisation phenomenon. The AIM seems too risky for many investors but there are opportunities there for people willing to evaluate the risks. I’ll be maintaining my holdings in the AIM but not increasing them. These small companies, pioneers looking to discover oil, looking to develop new drugs and developing the latest technology are high risk but offer excellent returns on investment if only they can find what they are looking for.
This blog only offers opinions not investment advice and so if you’re investing, do your own research. If you would like to subscribe and receive an email each time I post just enter your email address at the top of the sidebar or follow me on Twitter for updates. You can also find ideas on my Facebook page.