Trump boom could be our biggest threat

FOR more than a year now we have been concerned that investors are being threatened by politics and policies.

Last week we had developments on both fronts.

On the political agenda, there was the election in the Netherlands in which incumbent Prime Minister, Mark Rutte, fared better than expected to defeat Geert Wilders’ Freedom Party.

However, the bigger threats are yet to come – the French presidential election in April/ May and the German parliamentary election in the autumn.

Even though the far right Alternative for Germany party looks as though it will gain seats in the Bundestag for the first time, the next Chancellor will still, in all probability, come from either the Christian Democrats (Angela Merkel) or the Social Democrats (Martin Schulz).

Mrs Merkel represents the status quo, so is the markets’ preferred choice, but Schulz is a dyed-in-the-wool eurocrat and presents no threat to the European project.

France’s election remains the biggest obstacle, with Marine Le Pen of the National Front leading the polls for the first round of voting. If she becomes president, she has promised a referendum on EU membership.

On the policy front, last week’s big news came from the US Federal Reserve, which raised the benchmark interest rate by 0.25 per cent. That was sufficient to allay fears of too aggressive a tightening cycle, allowing equity markets to rally again.

So, where does that leave us? Pretty much where we were before!

We know that something will come along to upset equity markets at some point.

The recent rash of all-time highs for many equity indices is creating its own nervousness with many commentators expressing feelings of financial vertigo.

However, what we should be most wary of is too big a “Trump boom” leading to over-heating the US economy and possible reacquaintance with an old-fashioned boom/bust cycle. John Wyn-Evans is head of investment strategy at Investec Wealth & Investment