Wednesday, May 10, 2017

Two elections, two questions for investors

In the past week, two key elections have been held that have important geopolitical, economic, and investment implications. First, remember this Time magazine cover? I indicated on February 6, 2017 that the cover may have marked Peak populism.

I suggested at the time to buy France and sell Germany as a pairs trade. That trade has certainly worked out well. Now that Emmanuel Macron is destined to be the President of France, and Angela Merkel is the front runner to win another term as German Chancellor, challenges lie ahead for French-German cooperation in the eurozone. Macron has voiced his objective of greater European integration as part of his electoral platform, the question is, "How much integration is Germany willing to accept?"

As well, I wrote on April 17, 2017 that the US had few good options in dealing with North Korea (see The Art of the Deal, North Korean edition). Now a further political development is certain to cause both Trump and the American foreign policy establishment headaches, namely the election of Moon Jae In as the President of South Korea. The South Korean KOSPI Index has rallied in the wake of this electoral result, but the likely loser in any geopolitical settlement engineered by Moon is the United States.

Marketwatch recently featured a story indicating that investors should look to non-US equity markets for future gains, as valuations are far more compelling overseas. Not so fast! The story is more nuanced than that. The resolution of the situations in Europe and Korea have profound investment implications. As well, they have the potential to set the world on some very different paths for the next decade.

The full post can be found at our new site here.

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