Europe: populism on the rise?
According to State Street Global Advisors (SSGA), deputy global chief investment officer, Lori Heinel, major elections in Europe will intensify concerns of further destabilisation of the euro — most notably in France where the Eurosceptic National Front Party has grown in popularity.
“There remains a very strong incentive for EU officials to do whatever it takes to maintain the monetary union,” he said. “It only takes the idea of instability to incite fear among investors and this sensitivity could drive euro weakness during the first half of 2017.
“While there is still a great deal of uncertainty around final effects, we can already see that some of these changes will likely hasten shifts that are already underway.”
Heinel added with monetary policy perhaps at its limits to stimulate growth, a turn towards fiscal stimulus, which will also serve to appease social discontent in some countries, is likely in 2017.
“But political tensions could limit the scope and effectiveness, and the knock on effects could lead to more volatility and more differentiation between market winners and losers,” he added.
However, NN IP principal strategist multi-asset, Patrick Moonen, questions whether investors are overly worried about political risks in Europe.
Moonen believes there could actually be significant relief rallies in 2017 in Europe as political risk events feared by investors fail to occur.
He said: “In 2016, political events coincided with positive market swings, even if these political events were considered beforehand to be negative. Although it seems fair to assume that populist parties will gain in strength, how likely is it that they will actually govern in the Netherlands, France, Germany and Italy? So in 2017 we may actually see important relief rallies each time the risk event does not occur.”
However, he also questioned whether investors were being too complacent with regards to the political risks in the US, especially with regards to the protectionist agenda of Trump.
