The next 12 months will be an uncertain world, with a busy political period with the US Presidential Election, continuing Brexit, and Elections in France and Germany. We expect much market volatility due to these events.
In recent decades, political events have had a limited influence on financial markets. But this is could be changing, particularly as we approach the US presidential election on 8 November.
The key issue for investors is the potential for the US to impose trade tariffs. Conditions are ripe for protectionism to have broader appeal regardless of the result, although Donald Trump appears to represent a more extreme risk. Such a new trade policy would lower forecasts for the long-term returns from US equities because protectionism inhibits productivity growth.
At a sector level, we expect a Trump win to hurt sectors most sensitive to economic uncertainty, with a significant correlation between the US business cycle and a high proportion of earnings originating from China.
A Democrat victory might appear more benign for financial markets, but Mrs Clinton is anti-fracking, which could affect oil prices, and could also deliver a package of expensive labour laws.
Private Fund Management
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