One of the highlights of our annual investment conference was a bravura speech from Rupert Harrison, the former chief of staff for the Chancellor of the Exchequer, George Osborne.
Harrison, now chief macro strategist for multi-asset funds at BlackRock, highlighted how investors had over-reacted to political risk in 2016 and why they should not make the same mistake in 2017 and learn to tolerate a certain amount of volatility.
"For many years we have been talking about how markets have been less driven by fundamentals and more by political influence and this is the year when that is going to happen more than ever."
Investors who reduced risk during the Chinese stock market turmoil in January last year, around the Brexit vote and the US presidential elections, were not rewarded, he said. His own multi-asset fund, he admitted, had been overly cautious around the time of the Brexit vote.
This echoes ongoing advice Barnett Waddingham is giving to its clients. For many years we have been talking about how markets have been less driven by fundamentals and more by political influence and this is the year when that is going to happen more than ever.
Keep calm and don't get side-tracked
It is our job as strategic consultants to help clients keep calm and not get side tracked by short-term issues. We will help them keep their eye on the long-term goals for their long term aims and ensure they do not veer away from their true beliefs.
It is interesting to note that Harrison is bullish for 2017 as BlackRock’s data analysis shows largely positive indicators from corporates. The likelihood of capital expenditure rising to its highest since before the Financial Crisis, an end to fears of deflation, a slow rise in interest rates and a pick up, at last, in European equities are all signposted by BlackRock.
That is not to say political risk can be ruled out entirely. “There are events in 2017 that we need to keep an eye on, but let's not be paralysed by those political risks,” said Harrison.
He cited the potential for President Trump to curtail global trade through his isolationist policy as a key risk. However, he added that as Trump’s number one objective was to restore jobs and profits in the US, this policy might easily be reversed.
While he sees the election of Marie Le Pen as president of France as a “big sell signal”, as it would spell the end of the EU.Though he noted that positive polling figures for Le Pen’s key opponent Francois Fillon made this unlikely.
These thoughts on political risk were echoed in the closing speech to our conference given by Alastair Campbell, the former media adviser to Tony Blair. Campbell gave his thoughts on why there has been a swing to such populist politics.
He saw the voicing of opinions on social media and voting in online petitions as having reshaped the political debate and replacing voting as some people’s main political activity.
Campbell said that Donald Trump had understood this change, the shorter attention spans that had come with it and had capitalised on it.
Watch our short video on how we help our clients to weather market uncertainty in the current investment landscape.