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What if ... populism comes back with a vengeance and bad things happen?

13 December 2017 in Economies & markets

We don't know whether populism will fade away, continue to lurk on the sidelines or suddenly flare up again. Currently, most commentators are hoping it will fade or lurk. But what if it doesn't? The fourth in our series of blogs on the potential surprises for 2018 looks at how economies and markets could be impacted if things don’t turn out as expected in politics.

What a rise in populism could look like

Despite scoring his first (and only) major legislative victory in 2017 with the Tax Cuts and Jobs Act, suppose President Trump continues to fall short on his other existing plans to reform healthcare, infrastructure, housing and welfare. Faced by an electoral disaster in the mid-term elections, he reverts to type, and appeals to his core supporters’ basest instincts. He withdraws from NAFTA, starts building his wall and implements protectionist policies against China. He ramps up tensions against North Korea, prompting significantly heightened geopolitical risk. 

What might happen in Europe?

In Europe, Russia takes advantage of a European Union distracted by Brexit and tries to repeat the successful annexation of the Crimea by fomenting unrest in the Baltic states. The hope engendered by the election of President Macron evaporates in the face of a resurgent populist movement in Italy that forms the largest party after the elections there and forms an anti-EU administration.

In Britain, Theresa May’s government collapses because of a compromise forced upon it by the EU during the Brexit negotiations on the border between Northern Ireland and the South, which results in the DUP withdrawing support. In the ensuing general election, Jeremy Corbyn wins on a pure populist mandate of uncosted promises.

How would this affect investments?

Because of all these events, politics would become the driving force to risk aversion. Risk assets would sell off aggressively, and safe havens, such as gold, the dollar, US Treasuries and the Swiss franc would rise on pure fear. The euro would fall and sterling plummet. Most equities would be crushed, although the collapse of sterling would mitigate the worst effects for UK investors. However, this would be scant consolation given the prospect of much higher personal taxation from the new Labour government.

How can I prepare for surprises in 2018?

How politics and populism play out in 2018 is just one of the many potential surprises in 2018. The good news is that our experts are continually exploring and analysing the markets to spot what's happening long before it affects investments. They'll help you prepare for the unexpected so you don't have to worry about known, or even unknown unknowns. You can come back to the wealth blog to read our other potential surprises for 2018 as we publish them over the next few days or for more information call/email us:

Email: CGWM_UK@canaccord.com

Telephone: +44 20 7523 4600

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

Past performance is not a reliable indicator of future performance.

Where investment is made in currencies other than the investor’s base currency, the value of those investments, and any income from them, will be affected by movements in exchange rates. This effect may be unfavourable as well as favourable.

 

 

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Richard Champion

Deputy Chief Investment Officer

Richard is Canaccord Genuity Wealth Management’s Deputy Chief Investment Officer, based in our London office. He is a member of the Asset Allocation and Portfolio Construction committees, as well as chairing the UK Stock Selection Committee. Richard joined Canaccord in June 2015. Prior to this he was Chief Investment Officer at Sanlam Private Wealth, and has extensive experience running Global, European and UK equity portfolios, as well as managing money for high net worth clients. He is an Associate of the Society of Investment Professionals.


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IMPORTANT: Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

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