IT is April Fools’ Day. Before twelve o’clock. I trust no one, writes Jeffrey Ball, assistant director at Brewin Dolphin, in Newcastle.
Apparently Scotland and Wales are going to become one country if Britain leaves the EU and scratch and sniff newspapers are now a thing.
Both clearly ‘hilarious’ pranks.
That said, reading/smelling news stories about the local fish and chip shop would have been fun.
Nestled between the various joke articles inevitably will be a non-fiction from everyone’s favourite pantomime politician, Donald Trump.
Every day seems to be the 1st April for him. “The beauty of me is that I’m very rich” he once declared. How modest and enlightening.
For all we wince at the tirade of head-shaking headlines, we remain rooted to the hope that common sense prevails and the people of America turn out on November 8th to vote for someone, anyone, who is not Trump.
He is seen as one of political hurdles the developed markets are facing at the moment that many Brewin Dolphin clients are keen to talk about.
The top three political topics are the US Presidential Election, the ongoing migrant situation in Europe and of course ‘Brexit’ – whether the UK should leave the EU.
All are built on a foundation of uncertainty and particular in the UK, it seems only the completion of June’s referendum will bring any closure.
In general though, for investors, the outlook for 2016 is dominated by economics, not politics. This is partly due to a more tangible feel when it comes to economic data and forecasts than worrying about the “wrong candidate” winning in the American mid-West.
Of more relevance is the US Federal Reserve keeping interest rates unchanged in March, dampening expectations of further moves and what they do at their next meeting.
A rise in interest rates will generally send the dollar stronger and oil weaker and is a sign the Fed considers the US economy is performing well enough to cope with another increase after December’s first step.
The concept of Donald Trump as President is unnerving but we are seven months away from the election.
So much could happen between now and then that the market is not focusing on it.
Until he starts realistically eyeing up that plush leather chair in the Oval Office, this will not change.
At home, Britain’s decision over its place in the EU will not affect many of the UK’s biggest listed companies.
With only 20 per cent of revenue from the FTSE 100 Index originating from these shores, even if the murky referendum waters clear and we actually get to the bottom of what the implications are, the assumption is that these multi-nationals will not be affected.
Similarly, the migrant crisis in Europe is clearly a terrible human tragedy but on an investment side of things, again, European multi-nationals are globally diversified enough when it comes to their operations to not be impacted.
All of this is not to say there is no such thing as political risk.
Brexit is the most relevant topic to us and foremost is the risk of a reduction of foreign capital flowing into the UK.
We are reliant on investment from abroad, which is why we have had a current account deficit for thirty years. It would be dangerous to tip the account balance further.
Nonetheless, despite the recent wobble in the stock market and forecasters appearing downbeat on growth, economic data is starting to improve, particularly in the UK and the US.
Bullish investors are expecting resumption in earnings growth after a two year hiatus, driven by a pickup in wage growth.
Now that last sentence is clearly less entertaining than Trump’s latest thoughts on Mexican wall construction, but for investors, ignoring the Trumpeting and focusing on the facts and forecasts is far from foolish.
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