Global financial markets might have a mild ‘taper tantrum’ this week following the Fed’s announcement, but there are bigger issues afoot that could spook them more significantly, warns the CEO of one of the world’s largest independent financial advisory, asset management and fintech organisations.
The warning from Nigel Green, chief executive and founder of the game-changing deVere Group, comes as the U.S. Federal Reserve is expected this week to make bold signals on plans to begin bringing to halt the pandemic-era stimulus as early as November.
He comments: “The world’s de facto central bank, the Fed, is likely to give us more of an idea about the phasing-out of the massive stimulus package that was introduced at the height of the pandemic.
“On the back of this, we can expect markets to throw a mild ‘taper tantrum’ – a brief collective panic – as values have been inflated by the enormous flood of monetary and fiscal stimulus that have run into financial systems and economies over the past year and a half.”
However, the market turbulence triggered by hints of tapering is likely to be “potentially less impactful than geopolitical issues that are looming on the horizon,” notes Mr Green.
“One of the largest risks is the China-Taiwan issue. Beijing is becoming increasingly noisy about its assertion that Taiwan is part of China. Meanwhile, the U.S. has ‘guaranteed’ the defense of Taiwan.
“Any escalation of tensions between the two world’s largest economies will directly impact global financial markets.”
He continues: “The other important angle to this issue is that of Taiwan Semiconductor(TSMC), the largest maker of chips which are needed for everything from cars to smart phones.
“As such, China’s moving in on Taiwan would with bring with it huge an extra positive for Beijing: it could potentially have state control over TSMC.
“This would be huge as China, which lags behind in the semiconductor sector, and it could use it as a stick to hit the West by threatening to cut off supplies to places like the U.S. and Europe.”
The deVere CEO says other issues that are likely to be closely monitored by the markets and which are “not yet grabbing the headlines as much as they should” include the expected slower economic growth, which is being driven by serious worries over the Delta variant of Covid and “how it could force further restrictions, impacting many sectors”; and the possibility of further regulatory attack from Beijing that “appear to highlight the Chinese government’s new thinking and its increasing push for control of private enterprise.”
He observed last month that the rest of 2021 will be defined by increasing volatility.
“Investors should buckle up, remain invested and seek out the inevitable opportunities.”
Nigel Green concludes: “Yes, the Fed’s hints on tapering are critical, but investors shouldn’t take their eyes off potentially more explosive issues that could impact markets and their returns.”