by Eleftherios Xanthakos*
The influence of politics traditionally had medium effect on investments and, apart from dictatorships and revolutionary outbursts, the effect was indirect.
Elections, referendums, complicated legislation and underground politicians’ efforts to influence independent authorities, have definitely influenced financial markets in the past, however mostly indirectly and rarely using fragrant methods.
Respectively, the investment environment was until recently characterized by a certain normality allowing macroeconomic data to be the major parameter for safe projections and providing a fair work place for investment advisors. Although surprises were not absent, those surprises usually affected the short term environment, leaving minimum impact in the long term.
In a few words, economic cycles were deeply respected and the correlation of investment tools (interest rates, gold & oil prices) proved an excellent material for university textbooks and a safe drive for investors.
During the recent years, a strong differentiation tendency has been observed leading gradually to the increase of political influence over financial markets and investments. Globalization via mass and social media turned our planet ‘smaller’, allowing powerful think tanks and regimes to gain substantial influence over populations with tremendous electoral and financial results.
Such an important outcome was the Brexit referendum procedure in Great Britain. Former Prime Minister James Cameron was immensely pushed by powerful local and international political fora in order to proceed to a referendum regarding the future of GB to the European Union. Populists took advantage of the vast immigration problem and voters’ frustration and, via Brexit, they promised all benefits of the E.U. to remain untouched, without any obligations to engage forward. Voters’ shortsighted view, along with upper class absence, lead to the terrible Brexit result and tremendous financial effect on the British economy (currency devaluation, lack of competitiveness, diminish of foreign investments). Imagine what will happen if the Brexit procedure is completed, if ever completed…
Overseas, it was the case of Donald Trump’s election as U.S. President and how this event affected global economy. Although initially everybody believed that the new president will have a catastrophic effect on the global markets environment, soon he imposed positive legislation (America first moto) and social media interventions that lead to an amazing stock market rally relatively immense for the latest phase of the growing economic cycle. His peculiar corporate management style was used also in running the office while demolished all negative projections and preserved a very dangerous bubble with severe potential consequences if burst. Moreover, his constant effort to manipulate FED’s strategy while risking the central bank’s independency, lead to a switch from a tightening policy to a hold position, with a strong positive effect to global markets and pumping more air to the same bubble. Finally, his trade war policies increased volatility significantly and provided profits to investors who could, in advance, predict Trump’s interventions.
Back to Europe, populist parties gain significant power over voters (Austria, Hungary, Italy) and are expected to impose restraints in the effort of Germany & France for European unification and add many problems to the value of the common currency (Euro).
This new status produces intriguing challenges to professional investment advisors regarding the handling of such unexpected factors.
How can this new status be handled? How can a professional investment advisor continue his task providing the best wealth management strategies?
Knowledge, experience, ongoing training and constant follow up of every aspect related to investments – including politics- constitute the mixture every professional investment advisor should have. However, Artificial Intelligence will be able in the future – if not already- to evaluate those data and try to replace the human factor. What A.I. will not have, are the enhanced perception skills needed to predict and correctly respond to such conditions. Those skills, along with sharp instinct, shall provide the competitive advantage to the successful advisors ahead of amateurs and robots.
*Mr Eleftherios Xanthakos is the Manager of Trust Partners Consulting Company (www.trustpartners.gr), a Euroxx S.A. tied agent.
(This article was written on May 9th 2019)