Tariffs, Trump, North Korea and other global political risks in the Year of the Dog

Geopolitical events like Brexit and Donald Trump’s election in the US “surprised” investors in 2016 but had no lasting negative impact on global financial markets. By last year investors were well focussed on geopolitical risks – Trump taking over as US President, Eurozone elections, the Communist Party Congress in China and rising risks around North Korea – but again they did not have much lasting negative market impact. In fact, in most cases it turned out to be a positive impact.

Now in 2018 it’s already clear that geopolitical events remain significant, for example with Trump’s tariffs and the messy Italian election result. Despite their benign financial market impact over the last two years they are worth keeping an eye on. This note takes a look at why geopolitics is more important for investors these days and what to look out for this year.

Key points

  • Geopolitical issues generate much interest as dinner party conversations but don’t necessarily have a significant impact on markets, apart from a bit of noise.
  • But given a backlash against economic rationalist policies, the falling relative power of the US & the ability of social media to allow us to make our own reality, geopolitical risks are higher than they used to be.
  • Key issues this year are: around President Trump given the mid-term elections, particularly tariffs & the Mueller inquiry; the Eurozone after the messy Italian election and the likelihood that Merkel and Macron will work to build a stronger Europe; North Korea; and China.

Read the full article here.

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