insulating the US from the rest of the world. James Monroe would be proud.
Can globalisation be undone? In the US, following Trump’ s victory, industrial stocks surged while tech stocks took a beating. This difference in reaction is illustrative as to how market participants see the future direction of the US economy.
The campaign rhetoric used by Brexiters and Trump in the US often revolved around reviving a bygone era of local manufacturing and production. Frustrated electorates dutifully cast their votes in the hopes of restoring the prosperity of the past.
In the medium to long-term, market overreactions will correct. As in reality, Trump is just another US president with an off-kilter personality; he’ s not the first and certainly won’ t be the last. However, what cannot be doubted is that his presidency will have a profound effect on how global politics and economics function.
Markets are betting, for now, that there will be a raft of economic policies promoting manufacturing in the US. Whether it’ s even possible for the US, and the UK for that matter, to regain their status as the global manufacturing hubs they once were is a point of massive debate.
Try as he might, Trump is probably not going to succeed in undoing decades of globalisation. North America and most of Europe have surrendered much of their competitive advantage in manufacturing to developing countries, particularly those in Asia.
Don’ t worry about the UK. Watch the EU The Pound was hammered post-Brexit and has remained weaker as the markets have priced-in uncertainty, but with Trump’ s win, the UK is starting to look like a rosy place to be.
In the days following the US election, we saw the Pound climb to five-week highs. It’ s as if the US election put the post-referendum Pound slide into context and investors are now starting to buy into the undervalued currency.
The UK has a lot going for it right now. While the leave campaign was extremely right-wing and inward looking, the current UK government’ s Prime Minister is a person who voted to remain in the EU. This is vitally important to remember. Theresa May is now setting about achieving the best possible outcome for Britain post-article 50.
May is an astute politician who has assembled an extremely well-constructed cabinet and it’ s a near certainty that her government will be pursuing stronger ties across the globe, free from the yoke of the EU’ s regulations and treaties.
From where I sit, I’ d have to say that the EU will fall back into the media and market spotlights, only to highlight the big trouble brewing in Europe.
Keeping a shared currency and policies pointing in the right direction is difficult at the best of times. Now, with the nationalist nature of Brexit and the Trump victory, many analysts are expecting EU members to start leaning further right.
Brussels needs to wake up and realise that if the UK’ s vote was an indicator of wider issues in the global order, Trump’ s victory is a country-sized warning. If the European parliament makes some serious changes in the next few months, and become less rigid and desperate to remain as it is now, it could well survive for a while longer.
Can the EU pull the fat from the fire? It is now up to the EU parliament to recognize the incredible disillusionment of the electorates in its member states.
Pollsters are already saying the right wing Marine Le Pen can’ t win in the upcoming French elections. So far, however, they’ ve been wrong about Brexit and Trump. Will the third time be the charm? And what of grumbles growing louder in Italy, Austria and the Netherlands around leaving the EU?
The EU needs to bend, and bend quickly, before it breaks.
Trump, Brexit and this wider European discontent are not isolated events and trouble in the EU spells trouble for both developed and developing economies.
The Rand: Battered and bruised, as usual Through all of this the Rand is likely to get pummelled. It is still a risk-on currency and no one is keen on taking any on at the moment. Currently, the Rand is probably oversold, but when markets are this frothy it’ s very hard to tell with certainty.
Having said that, no matter what currency you’ re assets are in, you need to be patient and wait out the storms. Short-term trading is for the young and the reckless.
There will no doubt be further twists and revelations through the next few months. But keep in mind that currencies, the Rand included, will always revert to their fundamentals in the long term.
So don’ t throw the Rands out with the bathwater just yet. Any offshore investment decision you make, especially in these volatile times, will require a steady hand on the wheel and a keen eye on the distant horizon. You need to talk to someone who can help you with your offshore investments without getting emotional.
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www. reimag. co. za DEC / JAN 2016 SA Real Estate Investor 55