‘No need to always expect the worst’

RECENT history suggests it doesn’t pay to expect the worst every time a political shock hits markets.

Michael Livijn, who as Nordea Bank’s chief investment strategist makes recommendations that guide about $100 billion (R1.34 trillion), says don’t expect a bloodbath if elections in Europe this year unleash a populist wave like the one that propelled Donald Trump into the White House. That’s because crisis fatigue has led to increasingly rapid market corrections.

“It took the market three days to shake off Brexit, with Trump it took three hours, and the election in Italy three minutes,” Livijn said in an interview in Stockholm last Wednesday.

In Europe right now, “we believe that the political risk premium is slightly too high,” he said.

The next big date on Europe’s political calendar is March 15, when the Dutch vote in general elections. After that, it’s the turn of the euro zone’s second-biggest economy, as France holds the first round in presidential elections a month later.

The National Front’s Marine Le Pen, who wants to leave the euro, is neck-and-neck with Republican candidate Francois Fillon, according to first round polling by Ipsos Sopra Steria published on January 19.

Small reaction

As things stand now, Nordea is betting that a Le Pen win will result in a smaller market reaction than an outcome that affirms the establishment.

Nordea said earlier this month it is overweight global equities, reflecting its view the asset class will outperform others. Livijn says investors risk fretting too much over shocks whose outcome per definition can’t be predicted, instead of analysing the basics.

“Don’t forget the fundamentals,” he said. “It’s so easy to just search for the next trouble spot.” Nor is he overly deterred by events in Britain, as the country tries to find a legal path out of the EU.

With the UK parliament getting the backing of the country’s highest court to hand it more powers in the Brexit process, the risk of a more drawn out divorce has increased.

But here, too, investors would do well to stay focused on the numbers, according to the Nordea strategist. – Bloomberg