Sluggish growth and lack of opportunity is driving the popularity of nationalistic, extreme politicians around the world, which could have major implications for the markets, said Rona Foroohar, economics journalist and commentator with the Financial Times.
Foroohar, who spoke at a general session on Monday at the Investment Management Consultants Association’s annual meeting in San Diego, pointed to a Harvard study done before the 2016 election that found that just 30 percent of millennials thought of themselves as capitalists. And only about half of baby boomers said they believed in the capitalist system.
“The thinking is, among many, is that the system right now isn’t working for me … that it might be rigged. You saw that in the [U.S.] election, and in Europe now with the rise of nationalistic politicians,” Foroohar said.
In fact, two-thirds of young people are on track to do worse than their parents if the economy doesn’t pick up, she noted.
While globalization gets blamed for stalled wage growth and loss of manufacturing jobs, research shows that technology is to blame. Capitalism can work for more people, she said, but it will take an investment in training and wider access to broadband to make it happen.
At the same time, the stock market continues to reach for new highs, and volatility is lower than before the financial crisis.
But without real growth, “over time, Main Street and Wall Street eventually re-connect,” Foroohar warned.
Europe is in a cyclical recovery, “the brightest moment since the crisis,” but unless a true political union is achieved the European Union is vulnerable to a break-up, she said.
“In bad times, it doesn’t work . . . countries need more flexibility to deal with [financial stresses]” in Europe, she added. And a victory by Marine Le Pen for the French presidency could instigate the breakup of the European Union.
In China, slowing growth and a debt buildup is triggering a more defensive, nationalistic response, which you can see with its actions in the South China Sea, Foroohar said. Look for a possible blip in China and emerging markets this summer if the Fed raise rates again.
Due to Asian tensions, most companies have plans to get trade routes out of Asia, she added. Mexico could benefit, and we could see more regional trade pacts if Asia becomes a trouble spot.
And the North Korean situation is “incredibly underplayed as a risk,” Foroohar said.
There’s been very little volatility around the threatening situation on the Korean peninsula because the issue is complicated by America’s evolving relationship with China, which is North Korea’s main trading partner, she said.
Economy, Schmeconomy . . . The Big Worry Is Politics
May 1, 2017
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