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Brexit, US-China trade war, and US elections: 3 big things that will impact the FTSE 100. Here’s how I’d invest

Manika Premsingh
·3-min read
FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White
FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White

Brexit, the US-China trade war, and the US elections are big political and policy decisions that will impact investors in 2021. Both Brexit and the US-China trade war have been with us for some time. In fact, their impact on financial markets and the FTSE 100 index is already visible. But their effect can reach a conclusive point in 2021. The US elections, of course, are the biggest regular politial event for global stock markets, whose impact we’ll start to see next month onwards.

Brexit impact

First, let’s explore the Brexit impact. There’s no way of knowing whether a Brexit deal will go through or not. Even if a deal is signed, there is likely to be an adjustment period for the UK, which could keep economic growth muted. This is especially true after the pandemic, which has weakened the economy severely.

I think the best investing decision, keeping Brexit in mind, is to buy either defensives or geographically diversified stocks. They are least likely to be impacted by any potential Brexit blow. One FTSE 100 defensive is the consumer goods giant, Unilever. A stock with international exposure is the luxury brand and retailer Burberry. Read more about the investment case for both in my recent article.

US-China trade war

Next, the US-China trade war is about to reach an inflection point too. While the present US government is at loggerheads with the Chinese, the future depends on who wins the US elections next month. According to the BBC, there’s a higher chance that Biden will win. This could change over the coming weeks, but for now, let’s assume a Democrat sweep will happen. After confontrational relations between the two countries in recent years, some cooling off in the US-China tensions is likely. But, multiple news analyses I’ve read lead me to believe that relations between the two could remain stressed nevertheless.

The US and China are the two biggest country economies in the world today. As long as their cooperation is strained, resulting in less trade, economic performance will be directly impacted. In a globalised world, this will have ripple effects elsewhere too. I think FTSE 100 stocks with their own momentum should be considered to beat a potentially sluggish global economy. Stocks related to clean energy, like the FTSE 100 speciality chemical supplier Johnson Matthey is an example of this. I wrote about it in some detail a few days ago, for the interested (Forget Tesla! These are the FTSE 100 shares I’d buy to get in on the growing electric vehicle trend).

US elections

More generally, though, a Biden win is expected to be a positive for the US economy. Noted economist Nouriel Roubini recently wrote in The Guardian that there’s a positive correlation between Democrat governments and faster economic growth. For FTSE 100 investors, companies with significant US business will benefit from this. One example is the construction biggie CRH, whose share price has corrected recently giving investors an opportunity to buy.

In sum, there are plenty of FTSE 100 plays irrespective of how policies impact stock markets in 2021.

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Manika Premsingh owns shares of Burberry. The Motley Fool UK has recommended Burberry and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020