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Video: Becoming immune to political shocks

Monday 8 May, 2017

Video: Becoming immune to political shocks

Article by Liam Dann, originally published in the NZ Herald

Markets are braced for political turmoil around the French Presidential election this weekend but should be better prepared than they were for the shock of Brexit and the Donald Trump's win, says Pie Funds chief executive Mike Taylor.

"We say people are doomed to repeat their mistakes but on a short term basis investors do learn," he said.

After the election of Trump and the Brexit vote investors had become better at pricing political risk and approached the French election with worst case scenarios in mind.

The French elections have seen the rise of a populist right wing candidate in Marine Le Pen.

Although she survived the first round of voting, to run head to head with the more traditional liberal candidate Emmanuel Macron this weekend, polls show she is not likely to win.

"They [market] started to take some risk off the table, hedge some their investments," Taylor said.

"So when we had those first round results and it looked like Macron was going to go through we simply saw them unwind those hedges they had put on and put risk back in to the market. That's why European markets were up three or four percent on the Monday after the election."

Investors were also getting better at understanding that all the rhetoric that dominates news headlines was not necessarily going to happen, he said.

"People tend to moderate when they get in to power."

Taylor said he believed the dynamic was similar in New Zealand and he didn't anticipate a change of Government here being enough to seriously rattle the market.

Even if Winston Peters held the balance of power and there was some sort of movement on immigration it wouldn't change the fundamentals, he said.

Taylor had just returned from a research trip to the UK where even the Brexit turmoil was being managed by businesses.

Despite the many big political challenges that remain as it seeks to exit the EU, the mood on the ground with remained quite buoyant, he said.

"The feedback was that they are being very pragmatic about it. Some firms actually see it as an opportunity, with weakness in competitors they may look to acquire them. But generally the vibe was pretty positive."


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