I am writing this in early June, so goodness knows what the state of play will be when you read it in August!
However, for long-term investors that should not matter. Of course, there are plenty of things to worry about; there always have been and there always will be. Nevertheless, there is a saying in finance, that “stock markets climb a wall of worry”, and there is much truth in that.
One thing that can accentuate this phenomenon is that bad news sells, so the media tends to focus on negative stories, rather than positive ones.
Trump's tariffs
In the economic world, that means fretting about Donald Trump’s tariffs, as well as inflation.
It does seem that we have entered a new era, with globalisation being toned down somewhat, meaning supply chains are more likely to be hit, from time to time, as they realign.
This is probably a legitimate fear and does suggest we may get occasional bouts of inflation. Nevertheless, companies are usually able to put up their prices (indeed, a cynic might argue they are happy to take advantage of the cover excuse of inflation to do just that), so stocks and shares do provide some protection from inflation deflating capital held on deposit.
With regards to President Trump, he is certainly unpredictable, and at times inflammatory, but he is a businessman at heart. For that reason, we have to assume he would not want to go down in history for crashing the US economy and markets.
Here in France, we have our own political worries in that we have a government with no clear majority, meaning it is very difficult to get anything done.
However, it could be counter-argued that companies in France now have relative clarity in the knowledge that no radical new (thus potentially damaging) policies are likely to be introduced until at least the next presidential election in 2027.
So is there any good news out there? Or, at least, reason for hope?
Read more: Partner article: Where should Britons in France invest – and why?
Fall in inflation
In France we can be grateful that in May inflation has fallen to just 0.8%, well below the EU average of 2.4%.
Both these readings have allowed the European Central Bank to lower interest rates in the Eurozone to 2.15%.
Lower interest rates should encourage investment, although it seems unlikely the Eurozone will be the driving force of growth in the global economy.
Indeed, investors need to have diversified investments and to consider the global economy. Over the next five to 10 years, the most likely sources of growth would appear to be the US and Asia.
If we can look past Trump fears, there is plenty to like in the US economy, which continues to tick along at a reasonable, but not (yet) brisk, clip.
Tax levels are almost certain to be maintained (not raised) and deregulation is very likely on the way, both of which are positive for stock markets.
However, I would suggest the real reason for cautious optimism is Artificial Intelligence (AI). As ever, there has been a lot of scaremongering around AI, some of which is of course right and just.
Nevertheless, the fact is that AI will make companies a lot more efficient and, as a result, a lot more profitable.
Furthermore, such advances could come at exponentially increasing speeds.
China, while it has its problems, in particular a burst housing bubble, is very much at the forefront of AI and high-tech industries, including electric cars, so should not be dismissed. Asia as a region, which of course includes India, is likely to be a key driver of growth over the medium to long term.
Read more: How to plan for your financial future in France
Best investment solutions for French residents
Over the long term, on an inflation-adjusted basis, equities (shares) have consistently outperformed all other asset classes (property, bonds, gold).
Consequently, it is important to have at least some exposure to equity markets.
Today, any investor should look globally. It is important to diversify, not only to reduce risk, but also to benefit from the key drivers of growth.
Secondly, try to keep costs low, as fees can eat into an investor’s profits.
Finally, it is crucial to invest in a way that optimises tax efficiency in France, as well as in your country of origin should you wish to one day return there.
The good news is that the above combination is not only essential, but absolutely possible (except, unfortunately, for our American friends, who have strict reporting rules to the IRS, making tax-efficient wrappers very hard to access).
Holding shares directly is generally not attractive for tax and investment efficiency, so we would recommend you take qualified investment advice on alternatives, such as a suitable assurance vie structure, from an independent adviser regulated in France.
Christopher Davenport is a financial adviser at Kentingtons.
