Following the Federal Reserve’s announcement this week, global financial markets may have a mild ‘taper tantrum’. Yet there are bigger issues on the horizon that could spook them substantially more.
This week the U.S. Federal Reserve is forecast to make bold indications on plans to bring a halt to the massive coronavirus-related stimulus as early as November.
As such, we can expect markets to have a mild panic as values have risen by the huge wave of monetary and fiscal stimulus into financial systems and economies since the pandemic hit.
Nevertheless, the market turbulence as a result of the tapering signals will likely be overshadowed by geopolitical issues that are afoot.
One of the biggest risks is the issue involving China-Taiwan. Beijing is making more noise about its assertion that Taiwan is part of China. Meanwhile, it has ‘guaranteed’ the defence of Taiwan.
Of course, mounting tensions between the world’s two biggest economies will directly affect global financial markets.
Another angle of the China-Taiwan issue involves the Taiwan Semiconductor (TSMC), the largest chip manufacturer, which are required for everything from cars to mobile phones.
Therefore, China’s moving in on Taiwan would be a massive positive for Beijing, as it may gain state control over TSMC. This is particularly significant as China is trailing behind in the semiconductor sector, and this could be used against the West if it threatened to stop supplies to places such as the United States and Europe.
Other issues that will likely be monitored by the markets are factors such as slower economic growth, fuelled by fears over the Delta variant, and ways it could lead to more restrictions impacting many sectors; as well as further potential regulatory attacks from Beijing that underscore the Chinese government’s increasing drive for control of private enterprise.
As such, in the face of increasing volatility investors should be prepared, stay invested and find the inevitable opportunities.
Yes, of course the Federal Reserve’s hints on stimulus tapering are critical, but investors should keep focused on possibly more explosive issues that may impact markets and their returns.
Nigel Green is CEO and founder of deVere Group, one of the world’s largest independent financial advisory and fintech organisations.