The friendly Commonwealth Games are underway in Glasgow. The Test Series between former British colony and now Commonwealth partner India continues in Southampton in Hampshire. The Golf Open and Wimbledon Tennis Championships are already past. The UK is enjoying some pleasant summer weather along with economic growth and GDP finally back above 2008 levels (though not per capita).
Yet, the world’s oldest political union is a few weeks away from a referendum which could permanently alter the political status quo in the UK on a scale not seen since its inception in 1707.
The debate has been criticised for being too short on important details, currency or EU membership, for the separatist SNP and too bland, focussing on economic rather than identity and benefits of being Scots and British, for the main UK political alliance Better Together.
In comparison the revolting antics of the pro-Russian separatists in Eastern Ukraine by blowing up the Malaysian Airlines MH17 flight in order to protect “their” sky against enemy infiltration. Then denying responsibility and refusing to give access to international investigators to the crash site sorely tests the outside world’s patience and their Russian backers’ political credibility.
Grim news reports of the carnage besetting Syria, Iraq and again in Gaza further contrasts with the stability and maturity of the world’s oldest union and its established democracy and institutions in handling such an emotional multifaceted issue as Scotland leaving the UK.
Regardless of the referendum result this civilised and considerate approach to the difficult question of separation with the all upheaval it causes deserves to be widely praised by other nations and supranational bodies. The process shows how to behave when trying to tackle difficult issues of territorial gain or loss, economic benefits, status and identity.
It would be inconceivable, at this point, that after the 18th September referendum a politically separated Scotland or a reconfigured political union for the whole UK could descend in civil warfare as witnessed in Ukraine, worse Syria or even what happened in Northern Ireland with the troubles in the c.20th. Let’s hope that national sanity and civilisation prevail either way the result turns out.
From an investor’s viewpoint what really spooks markets then (FT, 2014)?
The appalling geo-political events of the summer (or year to date) in the Middle East, Crimea/Ukraine, or territorial sabre rattling in the Far East over islands or atolls claimed by China and several others seem to have only tepid or temporary effects. The US economy has just recorded 4% second quarter growth (FT, 2014), stock markets remain around year highs and bond yields for both sovereign and corporate debt remain low.
If there’s little need to fear the political what then causes a market sell-off or another economic down turn as many seem to fret about in the media. The list seems to cover property bubbles in the UK or China, ending QE, lifting interest rates, money printing causing inflation, low growth causing deflation, and Eurozone sovereign debt worries re-igniting and of course, inequality between the wealthy and the 99%.
Is it an aggregation of events coupled with a random event, either political or economic that overwhelms governments, regulators and destroys confidence?
You can argue, predict and less so time such eventualities. The scale of which remains unknown until it occurs. So what to do? – except hang on, stay long and enjoy the summer’s sport. The bold and clever can go short but either way it’s advisable to hold some cash and keep an eye on the world’s events during the dog days of summer.
LDC.
PS. Before posting- Argentina according to S&P is defaulting on its debts (again) (Source: Bloomberg TV News). Is this the random financial event to scupper confidence? My guess- No, it needs another.
References:
Koesterich, R. (2014), “Why Geopolitics: Barely Trouble Investors”, Financial Times Publications Ltd, London, UK. Website accessed 30th July 2014: http://www.ft.com/cms/s/0/6065acfe-05e4-11e4-9baa-00144feab7de.html?siteedition=uk#axzz387KcFQBV
Harding, R. (2014), “US economy roars back with 4% growth in the second quarter”, Financial Times Publications Ltd, London, UK. Website accessed: 30th July 2014: http://www.ft.com/cms/s/0/72880752-17ea-11e4-b842-00144feabdc0.html?siteedition=uk#axzz38yDSTM8o