A new world order: politics and markets

The world enters a transformed political era in 2017.

The western world was struck by several surprising populist votes last year. Pauline Hanson’s One Nation Party secured four seats in the Australian Senate, more than they ever have. Britain took the world by surprise in voting to leave the European Union (EU) and the United States elected a real estate mogul with no previous political experience.

Most of these events were referred to as ‘upsets’, and ‘populist uprisings’. They were the opposite outcome of what media and investment markets expected. It felt like it was not just the issues making the news last year in politics, but the system, the structure and the political process itself. There was, and still is, a questioning of political systems and our understanding of them. As we enter into 2017, we’re left asking how this happened and what impact it will have over the next 12 months.

“Surprise”: a political review of 2016

When the UK voted to leave the EU last year, the strangest phenomenon followed in the aftermath: surprise. If we look back, many polls were predicting an extremely close vote for Brexit. Polls from The Economist, The Financial Times, The Telegraph and The Daily Mail all showed a tight decision leading into 24 June. When the decision was called for Britain to leave the EU, the Brits themselves were more shocked than anyone. Hours after the decision, the top 5 Google searches within the U.K included ‘what happens if we leave EU?,’ ‘what is the EU?,” and ‘what does it mean to leave the EU?. This is the same population that voted on the decision just hours before.

When Hillary Clinton had conceded the presidency to Donald Trump several months later, the same thing happened; most people around the world were, to put it mildly, surprised. Indeed to progressive, liberal voters, these results were like waking up to a bad joke. According to political new site POLITICO, Donald Trump pulled off ‘the biggest upset in US history.’

If you believe in progressive politics, climate change action and human rights, last year was particularly trying. Interestingly, voter sentiment was not the only failed prediction. The stock market provided surprises of its own.

The media was wrong in suggesting that the outcomes of both the U.S. election and the Brexit vote would send equity markets tumbling. Equity markets did experience a dramatic fall leading up to the U.S. election seemed to correlate with Trump’s chances of winning, but once the result was known, everything went back to normal.

Our Chief Investment Officer, David Macri is more cautious on the outlook for 2017 stating that “markets have discounted the ‘unpredictability’ of Trump which could very easily return. The biggest risk to manage is his foreign policy.” He also suggests that “question marks remain on the feasibility of delivering Trump’s fiscal policy given the impact on the Government’s revenue and the flow-on effect to funding of important domestic areas such as healthcare and education”.

Regarding Brexit, Macri believes “it is still too early to suggest the negative impacts of the vote have been averted. It may take a while to fully understand the impact Brexit will have on the U.K, the EU and indeed the global economy.”

Impact on investment strategy

While politics continues to dominate the headlines, perhaps in surprising ways, it may be tempting for investors to react, particularly to emotive headlines and so-called experts offering sage advice, however Macri reminds us that “it is best to stick with long-term investment strategies. There are numerous studies that show most investors destroy value when trying to time market entry and exit, unless of course they are heavily immersed in the industry and conduct thorough research”.

“At Australian Ethical we have a team of investment professionals solely focused on delivering performance for our investors and devising strategies for our superannuation members that work to meet investment objectives over the full investment and economic cycle. My advice would be to remain invested and to ignore the ‘doom and gloom’ scenarios that make great headlines. Markets rarely behave the way journalists would lead us to believe”.

Impact on ‘Globalisation’ 

The last three decades have seen large increases in international trade, technological innovation and migration. The World Trade Report from 2013 shows a four-fold increase in the size of the global economy between 1980 and 2011. This movement has created new opportunities for economic growth. It has increased the GDP of many countries around the world and at the same time reduced poverty. It’s expanded access to education and healthcare and spread technological advancement.

It has also changed the way we relate to each other.  Companies, cultures and people are able to mix at a greater rate. People can cross borders more easily and traditional modes of society are changing from a nation-state focus to global frameworks and communities.

Most of the major movements last year can be viewed as a reaction to globalisation. Many voters felt exploited or left out by globalisation. Many feared the disruption of traditional identities and cultures. The Guardian called Brexit “the end of globalisation as we know it” and the election of Donald Trump a “backlash against globalisation.” A stirring of isolationist sentiment was definitely coming to the forefront.

Our Head of Ethics Research, Stuart Palmer, suggests that people should view isolationism with sceptical not rose coloured glasses. “The harm caused by some cases of exploitative foreign investment and trade should not blind us to the great benefits of globalisation. Rather than retreating to an isolationist world, we should fix the limitations and harmful side-effects of globalisation.”

Now, more than ever

From trade and market volatility to climate change, 2016 represented a global shift in the political sphere towards a less inclusive, progressive world. As most of us felt surprise with the movements of last year, 2017 can be different. Businesses, investors and consumers have an opportunity to make meaningful change through commercial and civic action.

Our Managing Director Phil Vernon has some powerful words to take individuals into the New Year. He says, “In most cases throughout history it has been the people who move the needle forward. Governments rarely act on their own accord. It is the agitation of their populous and passionate individuals to which they respond to best. The same goes for business. By organising together and pushing companies and government to recognise today’s problems, we can continue the progress of the recent years to addressing climate change, decreasing economic inequality and improving human and animal rights.”

 

 

 

 

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