Much like characters in an Agatha Christie novel, traditional political parties seem to be falling in quick succession, as unconventional parties rise to prominence. Yet markets do not react to political surprises in a consistent way. In this month’s investment strategy, we look at the reasons behind the reflation of markets and ask whether this is sustainable. We call for more caution in markets, especially in Europe where the political agenda we highlighted last month remains heavy, and uncertainty remains ahead of the forthcoming Italian referendum. Therefore, we keep a fairly conservative asset allocation… just in case.
While the famous “FiveThirtyEight” website had warned that Donald Trump’s chances of victory had risen to one in three on the eve of the elections, the conservative candidate’s unambiguous victory on 9 November still proved a surprise for most market participants. Trump’s appeasing initial speech spurred a rally on financial markets, which now indicate higher growth and inflation in the US driven by Trump’s stimulus programme, in spite of possible emerging market (mainly Mexico) jitters. What can we glean at this stage?
Source : AXA Real Estate