Shares in the age of populism

We are living in politically turbulent times as exemplified by Brexit and Donald Trump, and this is having an impact on the world’s stock markets. But not in the way that most analysts had expected.

“Both Trump’s victory and Britain voting to leave the EU were expected to cause stock markets to fall sharply. This did happen in one sense – but very few had predicted that the effect would only last from several hours to a day or two. Since then the markets have risen markedly, not least in the USA”, explain Lars Christian Tvedt and Are Dragesund in an interview with Ferd Magazine. Lars Christian Tvedt and Are Dragesund are respectively the Director and Portfolio Manager of Ferd Invest, and they together represent the team responsible for the group’s financial investments in shares listed on Nordic stock exchanges.

A boost to the economy – over the short term
Both Lars Christian Tvedt and Are Dragesund think that these share price gains are probably being driven by a belief that Trump’s impending presidency will lead to policies that boost the economy, at least over the short term.

“Trump is promising to deregulate the financial industry, to invest significantly in the USA’s creaking infrastructure and its armed forces, and also to deliver sizeable tax cuts. There may be benefits to these policies in the form of increased demand and a greater willingness to invest”, explains Lars Christian Tvedt.

However, these policies will also increase the USA’s foreign debt to in excess of the dizzying figure of NOK 168,000 billion by 2026, while inflation and interest rate rises will also gather pace.

“And if Trump actually carries out what he has promised to do in terms of protectionism, cancelling trade agreements and setting up tariff walls against China and Mexico, we may well end up with a trade war that will ultimately be very damaging for everyone involved”, he emphasises.

European uncertainty
In Europe as well there are signs that the economy is improving somewhat. At the same time, increasing distrust of politicians, “elites”, public institutions and the economy are enabling populists to exploit the discontent and fear of those sections of the population who feel threatened by progress. This may have a dramatic impact on the political reality of the European Union and Europe in general in the years ahead. For the time being, however, all this uncertainty has not had a negative impact on European stock markets.

“The fluctuations in the markets also affect Ferd Invest, but for an investor such as Ferd that bases its decisions on fundamentals and invests for the long term, there is limited upside in chasing after fleeting trends and rapid fluctuations”, comments Are Dragesund.

“So essentially we are sticking to our fundamental strategy of finding opportunities that constitute sound individual investments regardless of fluctuations in the markets”, adds Lars Christian Tvedt.

The whole article is available in the Ferd Magazine here (in Norwegian).

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