Welcome to 2025!

I hope this year finds you health, wealth and happiness.

Lack of growth prospects will force the Chancellor’s hand in one direction – which will it be?

We have discussed the power of bond markets to impact Government policy previously and Labour was very eager to celebrate the bond market pressure which led to Liz Truss’ doomed premiership.?However, the shoe is now firmly on the other foot and Ms Reeves is finding out that bond markets can certainly make life uncomfortable for a Chancellor.

Put simply, the bond markets are saying “where is the growth coming from Ms Reeves?”.

Labour came into the election saying all the right pro-growth things, however the implementation has been sorely lacking.?The attitude seems to be that growth just kind of happens, even if they make life more difficult for businesses. Worse is the further Left belief that growth must come from the state only and business is there only to take advantage of people so must be taxed until the pips squeak. Whilst I’m comfortable that is not the Chancellor’s view, there are certain members of her party who believe this.

To make matters worse, the self-imposed OBR limits Labour have placed on themselves leave with them with only 3 options and one of those may not be an option. The first is to wait and hope rates move lower following other global yields. This may happen, but it may not and they may be forced to change by OBR announcements first so it’s not really an option. The other options are either cut spending or raise taxes.

Raising taxes on business has reduced confidence and got Labour into some of this mess, so that will be a further difficult option, plus remember they promised not to raise personal taxes. And you would have to think cutting spending will create an internal war in the Labour party.I don’t envy her choices but this is the implication of not understanding how to grow an economy.

China struggling with growth as?well... is?this why?

The Chinese economic boom has also fallen on hard times. In the early 2000s, China’s entry into the World Trade Organisation along with state-sponsored industrial spending on a massive scale AND most importantly encouraging the growth of a large, successful private sector, spurred Chinese growth up to 14% in 2007. However, the conspiring factors of the GFC and a crackdown on the private sector saw that year as the peak growth. President Xi Jinping has committed to controlling the private sector with further actions against entrepreneurs who weren’t towing the party line. Remember when China’s richest man Jack Ma?simply disappeared for a year?

The FT have picked up the story highlighting the impact of the country’s draconian bankruptcy laws and venture deal structures requiring entrepreneurs to give PERSONAL guarantees and adding them to a debtor black list if they fail. The obvious implication is below:

Funding for new ventures has fallen off a cliff. And now China is struggling for growth. Not a coincidence.

You would think we’ve learned something from history and this whole Left vs Right economic growth philosophy has been demonstrated time and time again to only work in one direction. I forgot, did Russia win the Cold War? More recently take a look at Argentina. But it seems we have at least 2 countries here going in the opposite direction – China and to a lesser extent the UK – who still find it hard to understand that creating a hostile business environment DOES NOT lead to economic growth.

You can get successful growth without Government but you can’t get successful Government without growth. There... put that on my tombstone!

Growth doesn’t have to be just a US story

You just need to give it the right environment. As this chart shows there are plenty of global entrepreneurs out there starting companies, they just are choosing to do it in the US at the moment. The chart below looks at 500 companies in the US (only) that become Unicorns – i.e. worth over $1billion – and where the founders were born. Now it’s clear anyone running a real business or trying to find talent understands that the US' number one asset is?it's?ability to attract and retain the world's best and brightest. This is what gets lost in the immigration debate. You can be against illegal immigration but actively encourage legal migration – it’s absolutely possible to do both. Why do we not hear more about that?

Even though the US market is expensive, why are we still overweight?

To summarise our position, I actually couldn’t put it better than this summary below by our friends at?Datatrek?Research. This is 100% our view as well. This is a little technical in the language, but sums up the argument perfectly:

Have a good weekend.

Adam Walkom

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*My personal views only. Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest.*