Paul Jackson, Director of Asset Allocation Research at INVESCO*, shared his views on the current issues and their implications for the financial markets. He was invited by Sophie GEST, President of ACI, The Financial Market Association.
He was delighted to meet and debate with financial market professionals in Monaco, and gave them his analysis, which is summarised below:
"It is generally accepted that geopolitical problems can cause market disruption, but this is not always the case. Often these events have no significant impact, and even if they do, they are usually short-lived. Equity and bond markets are currently in good shape. If certain safe havens, such as gold, appreciate, this can indeed be attributed, like the rise in oil and energy prices, to geopolitical concerns. But overall, the markets are showing a degree of confidence.
A re-election of Donald Trump could lead to an aggressive policy, both economically and militarily, with implications such as a potential withdrawal from NATO in Europe and heightened tensions between Europe and Russia. This would force Europe to increase its military spending, and there would be a resurgence of fierce trade wars, particularly with China, as well as restrictions on European, Mexican and Canadian products. The result could be lower incomes for all, and potentially higher inflation, including for US consumers.
The shares of US companies, such as the Magnificent Seven, are currently overvalued and generally show a low return on investment over the long term. Valuations are more reasonable in Europe and especially in China, where they are currently comparable to those of the S&P 500 in 2009. Although artificial intelligence could boost productivity in the future, it is important to remain aware of valuations.
The rise in gold prices seen on the day of Donald Trump's election raises questions about the potential impact of his re-election on markets. However, it should be noted that the election results are uncertain, with very narrow forecasting gaps between the two candidates, and a complex voting system. In the UK, there is no doubt that the forthcoming elections will be a rout for the Conservative party... the question is how much.
In terms of investment, impact investment is more popular in Europe than in the United States, with numerous regulations around ESG (environmental, social and governance) criteria. Increasingly, investors are looking for companies that can contribute to the fight against climate change through new technologies, or that can adapt existing technologies. Climate challenges will require massive investment in sectors such as agricultural GMOs, for example, as crops will need to adapt to heat, wind and rain. Although many start-ups are developing promising processes in this area, they are encountering financing difficulties, not least because of the segment's low market capitalisation. Yet these developments are crucial for the future of the planet".
*INVESCO, an asset management company based in Atlanta, has been listed on the Russell 1000 index of the New York Stock Exchange since December 2007.
Assets under management totalled US$812.9 billion in December 2016
