Politics is driving markets – diversification is the “only anchor”
With politics in Europe, the UK, and the US driving markets, diversification is investors’ “only anchor” to manage risk and capitalize on opportunities amid the current political uncertainties.
This is the warning from Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory and asset management organizations, as speculation grows that Marine Le Pen’s far-right party will struggle to secure an outright majority in the French elections, the UK faces a general election this Thursday, and rumours grow that the current US president will be replaced as the Democratic candidate in the US presidential election.
He comments: “Politics is currently driving market dynamics – and therefore investor returns.
“As we know, politics shapes economic policies, regulatory environments, and investor sentiment. Election outcomes, legislative changes, and political stability directly impact financial markets, driving fluctuations in stock prices, currency values, and bond yields.
“This is happening in real-time.”
The deVere CEO continues: “The euro has risen along with European stock markets, driven by speculation that Marine Le Pen’s far-right party will face challenges in achieving an outright majority in the French elections.
“This development has alleviated fears regarding potential pressures on France’s public finances, leading to higher futures on French government bonds while German bunds have experienced a slight drop.
“Attention now shifts to the crucial second round of voting on July 7, where the power dynamics in France’s National Assembly will be determined.”
Elsewhere, the UK goes to the polls on Thursday, and it’s widely expected that the electorate will oust the Conservatives after 14 years in power and hand Sir Keir Starmer’s Labour party a healthy majority.
“The UK’s blue-chip index, the FTSE, is largely influenced by international factors, but we expect three specific sectors, among others, are positioned to gain from a Labour victory: construction, banking, and renewable energy. As ever, there are winners and losers with a potential change of government,” says Nigel Green.
He goes on to add: “Markets are pricing in an increased possibility that former President Donald Trump will defeat President Joe Biden after Thursday’s television debate in which the incumbent looked frail and confused, igniting rumours he will be replaced as the Democratic candidate in these pivotal US elections.”
All of this political upheaval creates uncertainty, which markets loathe.
“Diversification stands out as really the only anchor for investors seeking to protect and grow their wealth,” affirms Nigel Green.
By spreading investments across various asset classes, sectors, and geographies, investors can buffer against the unpredictable nature of political events. This balanced approach ensures that the impact of adverse movements in one market is offset by stability in others.
Diversified portfolios are more likely to yield stable returns over time. The gains in certain investments can counterbalance potential losses in others, leading to a more consistent performance.
Investing across different regions mitigates the risk associated with country-specific political upheavals. Global exposure allows investors to tap into growth opportunities unaffected by local political dynamics.
Different sectors respond differently to political changes. A diversified portfolio encompassing a variety of sectors ensures that political decisions impacting one sector do not disproportionately affect overall investment performance.
To implement a robust diversification strategy, investors should consider spreading investments across stocks, bonds, real estate, and commodities to balance risk and reward; investing in multiple regions to reduce exposure to any single country’s political risk, and including a range of sectors to ensure that sector-specific political impacts are balanced.
Continuously assessing and adjusting the portfolio with a financial advisor to maintain optimal diversification in response to changing market conditions will best-position investors.
The deVere CEO continues: “As political landscapes continue to reshape market dynamics, savvy investors recognize the value of strategic diversification.
“By embracing this time-honored approach, investors can mitigate risks, capitalize on opportunities, and achieve stable returns despite the inherent uncertainties of the political climate.”
