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Politics and your portfolio

Published: 6 December 2016

From the EU referendum to the US election, 2016 has reminded us that it isn’t always possible to keep politics and portfolios entirely separate.

After his unexpected victory, Donald Trump takes over as US President on 20 January 2017 and it is taking time for investors to fully understand and assess the likely impact of his policies.

Closer to home the ongoing implications of June’s Brexit vote will be a feature of 2017 as the UK prepares to trigger Article 50 of the Lisbon Treaty and begin negotiations to leave the EU.

Why you should keep an eye on European politics

The American Enterprise Institute has said that the Brexit vote represented “an urgent warning to European policymakers about the precarious state of European politics”. And the next year could bring political developments that investors interested in all things eurozone - and in the stability of markets more generally - will want to keep an eye on.

Italy is currently a case in point. On Sunday (4 December) Italians voted in a constitutional referendum. While this was ostensibly about reducing the number of senators and improving the efficiency of the law-making process, President Renzi’s defeat could trigger fresh concerns over Italian banks and sovereign debt, as well as renewed speculation over its future in the EU.

In 2017, countries accounting for up to 40% of the EU economy are going to the polls.

The most notable election is likely to be in Germany in September, where Chancellor Angela Merkel has confirmed she will be seeking a fourth term. She is tipped to get it, but growing support for far-right parties and discontent over Merkel’s immigration policies are expected to make it a divisive and close-run affair.

Opportunities for the far right

March will bring a parliamentary election in the Netherlands, where the far-right Freedom Party led by Geert Wilders is tipped to attract strong support.

Wilders has been on trial since the end of October, facing charges of racial discrimination and inciting hatred. Judgement is due at the end of this week (9 December), but the party has been polling strongly and, as things currently stand, there remains a possibility that the controversial leader could yet become Dutch PM.

Another right-wing populist will feature in the French presidential elections in April and May in the form of the National Front’s Marine Le Pen. Like Wilders, Le Pen is anti-immigrant and anti-EU. She is tipped to reach the second round of the election on 7 May and if that does lead to victory for her it could add further to political and economic instability in Europe.

Elsewhere on the Continent

With Serbia, Norway and the Czech Republic among other European countries also staging elections in 2017 there’s no shortage of dates in the political calendar. European Central Bank meetings will be closely watched too for changes to interest rates and quantitative easing measures.

Closer to home

There are no general elections scheduled for the UK in 2017, although there will be local elections in May. However there has been speculation since Theresa May took office in July that she could seek an early election, particularly if a victory would make it easier for the Conservatives to achieve the Brexit outcomes they want.

There is ongoing speculation too that the SNP could call another independence referendum in Scotland, should the polls show strengthening support in favour of a Yes vote.

Political uncertainty and your portfolio

Investing in an area like Europe, containing multiple democracies with their own characteristics and political cycles will invariably have its challenges. On the flipside, there will almost always be value and growth to be found.

Research and understanding of what you are invested in, and how it might be impacted by unfolding political developments, is key. That’s true whether you invest directly in stocks and shares exposed to European markets and currencies or in an OEIC or unit trust, investment trust or Exchange Traded Fund with a European focus.

There’s clearly plenty for investors to keep an eye on that could impact on European and global markets and therefore on portfolios. There’s never a bad time to review your investments to check how they’re doing and whether amendments are needed.

Long-term investors with well-diversified portfolios can generally afford to leave things alone and ride out short-term volatility, but if you’re of a mind to search them out, choppy waters can also present new opportunities.

Important information

These articles are designed to help investors make their own investment decisions. They do not constitute a personal recommendation to invest. If you have any doubts as to their suitability you should seek expert advice. Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.

Your existing pension may have valuable benefits which you might lose when you transfer.

Laws and tax rules may change in the future without notice. The information here is our understanding in September 2016.This information takes no account of your personal circumstances which may have an impact on tax treatment.

Past performance is not a guide to future performance.

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