Here’s a not-so-wild guess: The device you’re reading this story on was most likely made or assembled in China.
Products manufactured in the world’s No. 2 economy are so pervasive that the even the average retail investor can grasp why a slowdown there would singe their portfolios, according to Randy Frederick, the vice president of trading and derivatives at Charles Schwab.
But when it comes to the ins and outs of Britain’s exit from the European Union, their level of understanding leaves more to be desired, he told Business Insider in a recent interview.
Those two issues — Brexit and China’s trade dispute with the US — are today’s biggest geopolitical risks to investors, in his view. And he’s observed that one of those is still flying under the radar for many stateside retail investors.
“The Brexit issue is, I think, a bigger issue than a lot of people realize,” Frederick said. “I think retail investors on our side don’t really get how big that is and how much of an impact it could have. I think everybody understands the China issue, and I think it’s just because it’s the stuff that they interact with on a daily basis.”
Investors had already priced in optimism about the trade war, Frederick said, even before that can was kicked further down the road over the weekend. The threat level from tariffs was nudged lower Sunday when President Donald Trump announced he would delay an increase in import duties on $200 billion worth of Chinese goods.
British negotiators, meanwhile, are hurtling toward a “no deal” Brexit on March 29. Should it happen, a hard Brexit would “almost certainly” throw the UK into a substantial recession that spreads to the euro area, according to Frederick.
On Monday, the opposition Labour Party said it would support a second referendum that would postpone the deadline and avoid a hard Brexit. But Frederick remains skeptical that this alternative outcome is guaranteed to play out.
“I can’t imagine that they’re going to walk away with the worst possible outcome, but the odds of that seem to be growing now with only about five weeks to go,” Frederick said.
A no-deal Brexit that tanks the European economy would raise the chances of an economic recession in the US by 2020, Frederick said. Equally risky is a breakdown in talks between the US and China; so far, manufacturing in both countries are showing signs of strain under tariffs.
On the flip side, a resolution of both issues would recede the risk of a meltdown in the US and give investors more clarity on the future earnings potential of companies.
“I do think that by late this year, we could potentially be back to record highs again if we can get those two issues resolved,” Frederick said. “If not, then I think it’s going to be a lot harder to get that to happen.”
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