Wealth Bulletin: Financial Concerns Over Political Uncertainties In The US, Europe And UK


Wealth Bulletin: Financial Concerns Over Political Uncertainties In The US, Europe And UK

This week’s expert, Bryan Goh of Bordier & Cie (Singapore), summarises how the previous 7 days’ moves will be affecting your investments.

Published on 9 January 2017

In a couple of weeks, Donald Trump will be inaugurated as President of the United States. Markets will focus on whether he will be true to his word. For a detailed analysis of Trump’s policies, see Top Private Bank CIO: How You Should Invest Under The Trump Presidency. Given how unpredictable Trump is, what the market perhaps is not expecting, are what, if any, new policies or directions he may take.

Key Financial Concerns

In Asia

We are concerned about general conditions in Asia. China appears to have stabilised but at considerable cost to debt levels. Capital outflows continue. The Indian economy is looking healthy, despite the recent demonetisation shock. Indonesia is also looking healthy. However, the Malaysian market has managed 3 years of consecutive declines, Singapore and Philippines, 2 consecutive years.

Each country has their own particular set of circumstances. Malaysia remains plagued by 1MDB, which is apparently a non-issue locally, but seems to be a significant issue for foreign investors concerned with corporate governance and rule of law. Singapore’s troubles are more international being an entrepot in a global trade war. A weak oil market has not helped the situation although a resurgent oil price may now provide some respite. The way the central bank uses FX as a control may also import higher interest rates when the economy can ill afford it.

In Europe

After the US election, Brexit investors will focus on political risks and Europe will oblige with several elections this year. Foremost of these will be the French presidential elections in late April where souverainiste Francois Fillon faces off against federalist Emmanuel Macron and far right Marine Le Pen.

A Le Pen victory is currently least probable and most potentially disruptive, which given recent election results cannot be ruled out. At stake is more than any individual country but the future of the Eurozone and the single currency. The extrication of a Eurozone member will be more complex and difficult than the exit of an EU member due to the legal and financial infrastructure and will not be welcomed by investors.


The UK government expects to begin extricating itself from the EU from March this year, but the process itself will likely take more than the 2 years that Article 50 provides. Currently the UK government appears to have no clear strategy for negotiating Brexit, or it may be playing its cards close to the chest, a strategy that may be confounded by domestic requirements for transparency and due process. The UK, while a smallish economy in the scheme of things, is important, first as a test case for removal of an EU member, and second as a potential catalyst for further fractures in the union.

The Week Ahead

On Feb 1, the FOMC meets to decide on interest rates. The Fed has telegraphed 3 rate hikes for 2017, the market is pricing in only a 1 in 4 chance of that happening. The week ahead will feature speeches by various Fed governors including the chair Janet  Yellen.

Interest rates probably bottomed in 2013, the duration rally of 2014 and 2015 was probably just a local trend within a new global (rising) trend. While interest rates have risen sharply in the last 2 months, they remain very low and 10-year treasury yield of over 3% will not be a surprise. That said, there is a limit to how much interest rates can be allowed to rise given the debt service of corporate and public America, especially if fiscal deficits are being contemplated. With this degree of uncertainty surrounding dollar interest rates, fixed income investors are advised to hedge or actively manage their duration.

Since 2011, world trade has been declining. Trump’s threatened protectionism merely exacerbates this existing trend. Since the majority of trade is settled in USD, a protectionist US and the repatriation of US corporate profits held abroad will likely create a shortage of USD abroad. This could have serious repercussions for emerging markets who are even more likely to finance their trade in USD.