I went to India in search of another mega-trend to add to the list of themes that will drive change and investment return in the new decade, but in this, the first Diary of 2020, I find myself looking west from a different place rather as the Apollo 8 astronauts did when they saw Earthrise from the moon. Travel broadens the mind most definitely, but also provides different perspectives.

A month ago 2019 was far from done, but ‘Steady as she goes’ seemed an appropriate title for the last Diary of the year. The interplay of monetary and fiscal policies that had supported financial markets throughout the year and delivered excellent returns to those investors prepared to climb the wall of worry were unlikely to be affected by political change. The global economy was still growing, but critically with low inflation and, as a result interest rates were likely to remain close to zero. And so it proved. Asset prices find free money to be a powerful aphrodisiac.

Looking back at markets in December it is remarkable how little did change given events. The pound is still about the same when compared to both the US dollar and the euro. As it was in the run-up to the election, bond yields both in the UK and around the world held steady and, until Friday, the same could be said of oil. Gold moved higher, whilst equity indices made steady, not parabolic, progress as worst outcomes were consigned to the history books.

Watching the UK election from Mumbai overlooking the Arabian Sea felt slightly surreal. The time difference of five and a half hours plus jetlag meant I was just about awake for the exit poll and was able to listen to a bit of instant reaction before a breakfast meeting. I returned to BBC World in time for the flood of results, victory speeches and, more interestingly, concessions. That the polls were right this time and that markets had moved in advance meant that the relief rally on Friday morning was over before nine o’clock. Then it was back to business as usual with such issues as the trade dispute between the US and China and the hardness of Brexit returning to the top of the investment agenda.

Those who confuse short-term tactics with long-term strategy do so at their peril. If December was painful for anyone it was those who had adopted a wait and see attitude and then finally realised that they had missed one of the best years for a long time. Back covering window dressing purchases before the Christmas break must have been very difficult.

I am reminded of a private investor who I used to be in regular contact with. He actively traded the options and futures market and at the beginning of each month would deploy his hard-earned investment capital across a range of instruments, almost always taking an optimistic view. Then throughout the next few weeks he would adjust positions taking into account price movements and the flow of news. It was impossible to have a conversation with him lasting for more than five minutes, but he had a system and it worked for him. On the last day of the month he was back to cash either ahead or behind where he started. Usually ahead in my experience.

As we start 2020 this seems to be the right tactical plan. It is far easier to make rational decisions about the future from a position of sensible optimism rather than event-dependant pessimism, where being on the wrong side of change is a catalyst for irrationality. Associated with this approach, those pursuing a mean reversion strategy may have to extend their patience for quite a bit longer. Of course there will be unexpected events as we saw on Friday with the American attack in Iraq which may have serious consequences, but these are judgements to be made when the time comes.

Looking at the developed markets of the west from India, it was hard to ignore the Orwellian, 2+2=5, influence where bad is good and good is bad. Low growth, ageing populations more concerned about maintaining their standard of living than creating opportunities for the next generation and low productivity despite the technological revolution are far from a recipe for rational exuberance. Business as usual yes, but not particularly inspiring.

India may have its problems, but these are overwhelmed by a tide of opportunity driven by size, youthful ambition and a long-term plan to raise living standards. ‘If China can do it then so can we.’ More to follow over the next few weeks, but for now I do think that it is right to add India to the mega-trend list joining the impact of technology on everything, which is why I am so interested in artificial intelligence, and the other giant of the east, China, which I visited a couple of years ago. Rather than fighting with the sea which seems to preoccupy us in the developed economies, it was good to warm my hands before the fire of life.

Written by

David Miller
Investment Director

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