October 2016

This month we look at political risk, both in the US and Europe, as the US presidential election and Italian referendum approach.

3 October 2016

Keith Wade

Keith Wade

Chief Economist & Strategist

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

Craig Botham

Craig Botham

Emerging Markets Economist

US election: odds on Trump are rising

  • The opinion polls are narrowing and post the Brexit shock we would not rule out a Trump victory in the presidential election. Both candidates favour fiscal expansion, but Trump’s are on a larger scale. Unfortunately, when combined with his protectionist trade policies they will only bring stagflation to a late-cycle US.
  • The US equity market remains buoyant, a sign that Hillary Clinton, as the candidate of the incumbent party, will win. However, there is still time for this to reverse.
  • The rise in populism is underpinned by anti-globalisation sentiment such that the greatest threat to our 2.5% global growth forecast is not economic, but political in the form of a surge in populism.

Europe’s political roadmap

  • Investors in Europe face another tough year navigating through lots of political risk. Brexit seems to have galvanised protest parties across the union, which is prompting investors to carefully consider the discount they apply to European risk assets.
  • Many of the upcoming events either carry a low risk of happening, or a low impact. The two most notable are the Italian referendum and Dutch election, where the former could see the Prime Minister lose his job, while the latter would propel a far right nationalist party into power. Elections in France and Germany in 2017 should be more straightforward, but Brexit has taught us not to underestimate protest movements.

Bank flows and the state of emerging markets

  • Recent data on international banking flows offers a chance to take stock of how easy monetary policy globally may have built vulnerabilities in emerging market economies. China is a problem, but there are other causes for concern, with Turkey, Colombia and Thailand looking riskiest in their respective regions.

Views at a glance

  • A short summary of our main macro views and where we see the risks to the world economy

The full document is available below.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.