The dominance of politics: investment implications

Concerns about trade continue to take centre stage. While US assets have so far been resilient amid escalating protectionist rhetoric, markets targeted by tariffs are under pressure. We still don’t believe a full trade war is likely and we still expect decent economic growth, though decelerating and less synchronised, and with only mild inflationary pressure. But, trade disputes could impact business confidence and investment plans, interfering with central banks (CB)’ interest rate normalisation processes.

Trade talks are just the tip of the iceberg in a more complex geopolitical world. In our view, we have entered a new era of the dominance of politics vs economics. New forces, more inward-looking, with nationalist nuances are now underpinning new political agendas all over the world. Bilateral relationships are likely on the rise vs multilateralism; threats to globalisation could come more into play. This new order could influence markets in many ways. First, due to permanently higher levels of geopolitical risk. These risks are not easy to price and can create short-term volatility, but also have long-term implications…