Whatever the outcome of the tense diplomacy surrounding President Trump’s Ukraine peace deal, especially following his explosive meeting with President Zelensky, the result is set to be a new world order.
Like other European states, Britain will be spending more on defence. So how will Chancellor Rachel Reeves balance the books? Should the UK and its Continental neighbours confiscate the billions in frozen Russian assets they hold? Should we as Britons be braced for stealth taxes to cover higher military spending?
As savers, investors, and borrowers, we need to consider the possible impact on our personal finances.
The shifting of the world order being brought about by Trump’s machinations over the future of Ukraine is driving a wholesale reassessment of investment portfolios. It means savers need to question some assumptions that have held good for years.
Small investors are looking for new opportunities – for example defence company share prices have soared – as well as seeking assets traditionally viewed as safe havens, such as gold.
There is also an interest in businesses that may be involved in any eventual rebuilding of Ukraine.
FORGET CRYPTO – GO FOR GOLD
The diminishing appetite for risk in a more uncertain world has sparked a decline in the price of bitcoin and other cryptocurrencies. They were riding high at the end of last year on a wave of optimism after Trump’s re-election, in the belief the president would be supportive of crypto. But bitcoin’s price stands at about $85,000, having fallen heavily from about $105,000 in December.
By contrast, gold is up 43 per cent on a year ago at $2,888 an ounce, underlining its age-old status as a refuge in an era of uncertainty.
The rise also reflects the extra demand set to flow from the artificial intelligence (AI) revolution. Gold is a small, but essential, element in microchips and in AI-enabled devices such as phones, as well as for the data centres that power this revolution.
The precious metal has its drawbacks – it generates no income. However, generations of investors have held some gold in the belief it is an asset that holds its value in uncertain times.
You can gain exposure to gold through exchange traded funds (ETFs) such as iShares Physical Gold, which put money into bullion, or through funds such as Ninety One Global Gold which owns shares in gold mining firms.
BACK BRITAIN
The encouraging results of Prime Minister Sir Keir Starmer’s meeting with the US president this week should be seen as good news. Jason Hollands of Bestinvest warns that Trump’s stance may suddenly alter, but the prospect of a trade deal with the US could restore some optimism in the UK markets.
To make the most of a revival in the mood, consider funds and trusts that back Britain, such as City of London and Temple Bar trusts. UK markets are set to be galvanised by foreign predators hoping to seize firms at bargain basement prices, such as US private equity firm Bain Capital’s bid for defence firm Chemring, and by activist investors pressing for improvements at firms such as BP.
City of London’s largest holdings include BAE Systems. Shares of UK firms in this sector, including Rolls-Royce, are soaring, driven by plans to raise defence spending in the UK and elsewhere. Other beneficiaries of this trend will be European armaments and aerospace manufacturers, such as Italian company Leonardo and the German conglomerates Rheinmetall and ThyssenKrupp.
Defence companies have been shunned by many investors in recent years since they did not comply with the ethical requirements for ESG (environment, social and governance) investing. But the perception of what is ethical is shifting from narrow, ‘woke’ definitions. The sector is now seen as not only crucial to national security but to upholding civil liberties. Both these areas are central to the social part of ESG.
BAG EUROPEAN BARGAINS
The threat of punitive trade tariffs on the EU hit its stock markets last week amid fears of a trade war. Nevertheless, if you are taking a longer-term look, it’s worth nothing that global fund managers expect these markets to outperform this year.
European companies will play a major role in the reconstruction of Ukraine. It is also expected that the wave of deregulation sweeping through America under the Trump administration will begin shredding the red tape that has Europe in its stranglehold.
Such reforms will not happen overnight. But, in the meantime the fortunes of European multinationals do not depend on their domestic economies, as these businesses operate on the world stage.
The Stoxx Europe 600 index is up by 9 per cent this year, while the FTSE 100 has risen by 7 per cent.
By contrast, the US’s S&P 500 index has risen by just 2 per cent.
Fidelity European, the investment trust, has stakes in big names such as German software group Sap, L’Oreal, Nestle and Hermes, maker of reassuringly expensive £10,000 handbags. Shares in the trust stand at an 8 per cent discount to its net asset value.
Individual European stocks seen by experts as bargain buys include ASML, a Dutch maker of semiconductor equipment, and Novo Nordisk, the Danish pharmaceutical giant behind weight loss drugs Ozempic and Wegovy.
Global sales of such drugs are forecast to exceed $ 200billion by 2031, almost regardless of the state of geopolitical conditions at that date.
