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European political risk to subside

The Trump victory in the United States may have represented the peak for the populist movement that seemed to be sweeping across the Western World.

2016, which featured Brexit and Trump’s presidential victory, was the worst year ever for proponents of liberal democracy and appeared to pave the way for populist movements in Europe, especially in France and Italy.

Many argued that this was the beginning of the end for the western world’s way of life.

However, the UK after Brexit reality is far from the utopian ideal sold prior to the vote and, in the United States, Donald Trump is proving to be divisive and controversial. And if there is one thing that the voting population hate more than the establishment is uncertainty.

Voters in 2017 seem to be shifting back to their traditional positions. The Dutch election dodged the trend, and polls indicate that the French election will not go Le Pen’s way.

Angela Merkel’s party, in Germany, is winning back support. Therefore, notwithstanding any major political surprises, stability should be on the cards at least up to June.

Sell in May and go away may once more be the prelude to a Greek crisis. Greece still casts a long shadow over Europe and failure to agree on the next tranche of the bailout programme will re-send the EU into crisis mode.

Everything else being equal, European Equity markets are expected to go into the French election with optimism. A Macron victory will probably propel European Equities further.

At that point, and with the Greek deadline approaching, markets will probably enter into a defensive stance. This may be the best opportunity in 2017 to add to European Equities if you are late to the party.

European equities are currently preferred to their US and UK counterparts. Investing in the UK at this stage would carry above average currency risk. Plus the outlook is not all that clear.

A Brexit victory does not seem to have been part of anyone’s plan, and the way forward presented by the government is reactive at best. The UK is slowly being relegated to small fish.

The hysterical equity rally that followed Donald Trump’s presidential victory has hit its first Major snag. The United States congress may not be ready to play ball after all.

Thus Trump’s expansionary outlook is suddenly in doubt. Donald Trump’s confrontational style may have served him well during the election campaign, however, it will hinder his political agenda if he is unable to compromise with fellow republicans and also with the democrats.

It is bizarre, but between a country run by Donald Trump, a United Kingdom going through Brexit, and the EU with all its baggage, the EU is current the investment region of choice. Despite all its bureaucracy, the EU today, more than ever, still provides a clear and stable rule-based framework.

Further political clarity will assist the flow of investment into the region.

Disclaimer: This article was issued by Antoine Briffa, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

 

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