Investors should capture performance in the good times, but also manage risks in our challenging global economic and political environment
When a letter signed by Prime Minister Theresa May was delivered to President of the European Council Donald Tusk at the end of March, it formally triggered the now-famous Article 50 of the Lisbon Treaty and started the Brexit clock ticking.
In a little over 700 days the UK’s membership of the European Union will automatically lapse, whether our Government has agreed a deal with it or not.
Despite being overwhelmingly in the Remain camp before the referendum, businesses are generally being pragmatic in adapting and looking to take advantage of the changing circumstances. I am sure they will continue to do so regardless of the political shenanigans that may take place over the next couple of years.
No doubt the press will keep up a running commentary of the negotiations but the process will be evolutionary. The most important date is 29 March 2019 when, whatever the progress with negotiations, our membership is guillotined and we will trade with the EU under World Trade Organisation rules (just as the EU, and we ourselves, trade already with the rest of the world). The closer we get to that point without having agreed a deal, the greater the risk investment markets will be volatile.
May is clearly attempting to head off any domestic political dissent by calling a snap general election for 8 June. While a win is not a foregone conclusion, the cards are sufficiently in her favour.
Assuming she does win, and with an increased majority, she will buy herself another two valuable years should she need them before going to the country again in 2022.
The outcome of the French Presidential election (final run-off 7 May) and the result of the German general election (24 September) could influence negotiations in a significant way. These are the two most important nations the UK will need to deal with and one or both of them may get new leadership with different priorities to the current incumbents. All this is something investors will need to keep an eye on when it comes to assessing risks.
The best of both worlds
On the other side of the pond, the political picture is barely clearer. It seems as though President Donald Trump has so far found that, in the corridors of Washington, being an anti-politics businessman does not get you very far when it comes to getting things done. Indeed, quite the opposite.
There are various limited elements of policy that can be achieved by executive order at the stroke of the President’s pen, bypassing Congress, but they are still able to be challenged and held up in the courts. Take, for example, Trump’s executive order banning people entering the US from various Muslim countries, which is already blocked.
Most policy areas, such as health, defence, the economy and the fiscal budget cannot be dictated by executive order and have to be painstakingly steered through Congress. To succeed, you need to identify, understand and attempt to neutralise your opponents. Seek core allies, build support and broaden alliances. Know when to cajole or threaten, when to compromise or concede. If he is to bring any major part of his agenda into effect, Trump will have to learn the art of politics.
All the above means the global economic and political backdrop remains complex and fluid. Stockmarkets are still flirting with all-time highs and bond markets, which are usually havens of relative tranquillity, have seen unusual volatility over the past year.
In such an environment it is important for investors to capture performance in the good times, while trying to manage risks in more challenging conditions.
John Chatfeild-Roberts is head of strategy for the Jupiter Independent Funds Team