Every time a political shock hits markets, it doesn’t pay to expect the worst, recent history suggests.

Don’t expect a bloodbath if elections in Europe this year unleash a populist wave like the one that propelled Donald Trump into the White House, says
Michael Livijn, who as Nordea Bank AB’s chief investment strategist and he makes recommendations that guide about $100 billion. This is because increasingly rapid market corrections have been made by crisis fatigue.

“It took the market three days to shake off Brexit, with Trump it took three hours, and the election in Italy three minutes,” Livijn said in an interview in Stockholm on Wednesday.

In Europe right now, “we believe that the political risk premium is slightly too high,” he said.

the Dutch vote in general elections on March 15 and it is the next big date on Europe’s political calendar. And as France holds the first round in presidential elections a month later, it’s the turn of the euro zone’s second-biggest economy. According to first round polling by Ipsos Sopra Steria published Jan. 19, the National Front’s Marine Le Pen, who wants to leave the euro, is neck-and-neck with Republican candidate Francois Fillon.

A Le Pen win will result in a smaller market reaction than an outcome that affirms the establishment, Nordea is betting.

“The big near-term question is of course Marine Le Pen,” Livijn said. “The market’s sigh of relief if Le Pen doesn’t win will probably be greater than the shock if she won, all things being equal.”

Reflecting its view the asset class will outperform others, it is overweight global equities, Nordea said earlier this month. Instead of analyzing the basics, investors risk fretting too much over shocks whose outcome per definition can’t be predicted, Livijn says.

“Don’t forget the fundamentals,” he said. “It’s so easy to just search for the next trouble spot.”

And as Britain tries to find a legal path out of the European Union, he is not overly deterred by events in that country.

Risk of a more drawn out divorce has increased with the U.K. parliament getting the backing of the country’s highest court to hand it more powers in the Brexit process. According to the Nordea strategist, investors would do well to stay focused on the numbers.

“It’s hardly positive if they delay it for too long,” Livijn said. “But I think it would be wrong to assume such a delay. Fundamentals in the U.K. are pretty good, so fears seem to have been a bit exaggerated.”

Several bureaucratic and practical hurdles are faced by Trump’s infrastructure plans in the U.S., Livijn says.

“So don’t expect anything to happen this year, or next, or even the year after that,” he said. “There are no earmarked funds for infrastructure at this stage.”

Instead, investors should take more seriously Trump’s agenda to reform taxes, he sees. That will be the “major thing,” he said.

Some policy makers are urging investors to wake up elsewhere in the Nordic region. U.S. investors are living in a “dream” if they think less regulation and Trump’s stimulus pledges will be all good, said Erkki Liikanen, the governor of the Bank of Finland and an ECB council member. Trump’s protectionist policies as those likely to do the most damage was singled out by Liikanen during a public debate in Helsinki on Sunday.

(Adapted from Bloomberg)

Categories: Economy & Finance