A reinvention on the horizon?
Brexit, the election of Donald Trump and Italy’s referendum vote (Italy’s almost-version of Brexit) in 2016, it is conceivable that upcoming political moments will follow the trend.
But on 5 December, Austria bucked the populist trend by choosing not to elect far right-wing federal presidential candidate Norbert Hofer. Could this mean that despite concerns regarding the stability and future of the EU, assuming the worst might be premature?
Perhaps the upcoming elections in Germany, France and the Netherlands in 2017 may not go to right-wing politicians who are pushing for anti-immigration and inward-looking policies after all.
Arthur Kamp, investment economist at Sanlam Investments, cautions that we should not be too quick to declare we understand how voters feel or which way they are likely to vote. “As we have seen, polls can get it wrong. One can only be certain of an outcome once the final votes are tallied.”
One of the key votes in 2017 is the presidential election in France. There are concerns that right-wing candidate, Marine Le Pen, will stand a chance of taking the top job in France, bringing with her a Brexitlike referendum for France to exit the EU.
Although 2016 has taught us that there is no certainty or predictability when it comes to the political inclinations of the world’s citizens, Philip Saunders, co-head of Multi-Asset at Investec Asset Management, is fairly optimistic that Le Pen will not win the 2017 election.
“I suspect that Marine Le Pen will do well, but I think it’s highly doubtful that she will become president,” says Saunders. Going by the tendency of past French presidential elections, if Le Pen were to make it to the second and final round of voting on 7 May, she would end up facing one other candidate, which will effectively be the Socialist candidate.
“What will happen is that the general centrist grouping will likely combine, which will make it very difficult for Le Pen to become president.”
If Saunders is right, then France will likely avoid being governed by a more nationalist agenda.
Says Cindy Sweeting, director of portfolio management at Templeton Global Equity Group: “On a more positive note politically, however, in recent months there has been a rising expectation that governments will increasingly start to focus more intently on fiscal stimulus, and we expect this theme to gain some traction in a number of major economies given the diminishing returns of unconventional monetary policy. With business confidence still in decline after a significant decline in global bond yields over the last seven quarters or so, and corporate capital spending remaining at very muted levels, it seems to make sense to look beyond monetary policy for some fiscal solutions to help bolster economic confidence and growth.”
On the tip of economic policy Saunders says, “If the European Central Bank (ECB) ends up in a situation whereby it will eventually taper its QE [quantitative easing] policy”, this could be potentially supportive of the euro.
Sweeting adds that austerity measures in Europe seem to be waning, and it seems that there could be increased moves towards infrastructure spending, “particularly if it helps alleviate unemployment and mollifies impatient electorates”.
Not booming, but not bust
Although the European economy has come under pressure, and investors will still be cautious to allocate to the euro, Sweeting says Templeton views current political dynamics “as representing both a threat and an opportunity for global growth. On the bright side, the rising likelihood of some fiscal stimulus could help spur corporate investment and bolster nominal economic growth.”
At the time of writing, although data for the fourth quarter of 2016 was sparse, FocusEconomics stated that the eurozone’s economy has remained on even footing. “The economy has shown resilience in the face of heightened uncertainty and the FocusEconomics panel expects this to continue, foreseeing GDP growth remaining steady, albeit lacklustre, at 0.3% over the previous quarter.”
2016 may have been a tough one for the world, but 2017 will not simply be more of the same.
“If you do see more of a global reflation unfolding, which is sort of our central expectation, that will help Europe to some degree. Effectively key risks that were at play in 2016, such as the risk of the US economy slipping into recession, will be much lower in 2017. Further, we’ve also seen some recovery in the developing world.”
Europe still has its particular political issues, but Saunders believes two things that are in the eurozone’s favour is the cheapness of European assets from an investment perspective, and a global economy doing better in 2017, which will benefit the bloc.
Marine Le Pen, leader of the French National Front, during the inauguration of her presidential campaign headquarters in Paris in November.