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Column: The desensitisation of financial markets to political travails

By Andrew Angeli - Friday, October 13, 2017 0:39

There was a small window over the summer when you could get away saying that the peril of European populism had been defeated, writes Andrew Angeli, CBRE Global Investors’ Senior Director EMEA Strategy & Research Team.

At a headline level, election results in the Netherlands and France delivered what could be called fairly traditional outcomes. Populist protagonists in the respective countries were quieted and their parties marginalised from having a hand forming governments. The political risk premium that developed in the first half of the year subsided and previously skittish investors found grounds for optimism.

However, a closer look at this year’s status quo election results reveals something far less traditional. Nearly 18mn people voted for right-wing Eurosceptic parties in three national plebiscites. The far right has entered Germany’s parliament for the first time in 60 years. In France, more than 12 million voters abstained. In all elections, the debate shifted from a well-trodden middle ground to energised extremes. This is hardly a picture of defeat. 

Anyone who has picked up a broadsheet in recent weeks knows that the risks around national politics have not been quelled and that populist agendas sustain momentum. Britain’s mainstream Labour party has lurched further to the left and now rallies behind the motto of “for the many, not the few“.  Fearing an adverse market reaction if they ultimately come to power, a pressing topic at their recent party conference was how to prepare for capital flight. In Cataluña, a complex political crisis is evolving with no precedent since the country’s return to democracy in the 1970s. And in Italy, the left-wing populist 5-Star party is rising in the polls ahead of next year’s general election.

The interesting thing from my perspective is how financial markets have recently become desensitised to political travails. There is a seeming disconnect between yield spreads on the Bloomberg screen and the flow of news on the telly. My strapline for much of the year has been that politics don’t matter, rather it is predictable regulation and responsive monetary policy that really count. What worries me at the moment is that we may be placidly ignoring political oscillations which ultimately could have a substantial impact on both.

Andrew Angeli is Seionr Director EMEA Strategy & Research Team at CBRE Global Investors

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