Factor in the presidential election in the US, and candidate Donald Trump’s forthright views on immigration controls in that country, and we could be in for a very volatile few years to come for international relations.
It may be the case that markets have always been driven by the geopolitical timetable, though perhaps the mass media age has heightened the tension.
“Clearly some of these problems are worth being concerned about, but on the other hand I think I have spent most of my investing career being fearful of geopolitical events,” remarks James Mahon, chief investment officer at Church House Investment Management.
“So far, I haven’t seen anything to remotely match the ending of the Cold War and the collapse of the Berlin Wall. If I look back at equity market ratings over 50 years, I see a very clear distinction between the range of ratings for international equities I was looking at pre the Cold War period, and now.”
On Brexit, he adds: “I would be much more worried about Europe than the UK – the UK could survive Brexit, but would the eurozone survive? I’m not sure.”
From a UK perspective, Mark Dampier, research director at Hargreaves Lansdown, warns that even if the bookmakers are right and Britain does stay part of the EU, markets could be set for a very volatile few weeks.
He explains: “The Brexit vote reminds me of 1992 when John Major surprisingly won the general election, then the market bounced strongly for the next few weeks; however then everyone realised that interest rates at 10% were still way too high and all the problems were still there.
“The market then went down until September when we got chucked out of ERM [European Exchange Rate Mechanism] and from there on we had a great run. It feels to me that we might get a bounce but then people will turn to focus on the American elections and Europe.”
