Although often overlooked, the fact of the matter is that stock markets and political events are inextricably linked. Considering that 2016 was undoubtedly one of the most newsworthy years in regards to political upheaval, many traders are wondering what 2017 has in store.
Specifically, have we entered into an entirely new domain? Will political events shape the ways that we trade and if so, in what fashion? These are all very important questions in order to develop the most effective investment strategy, so they merit further attention. Let’s have a closer look.
Have the “Experts” Lost Their Edge?
Many financially oriented articles will always tout the benefits of listening to industry experts such as fund managers and seasoned analysts.
However, some of these very same personalities were predicting a drop in the markets by as much as ten per cent in the event of a Trump win. What is even more interesting is that they back up such observations on technicals, fundamentals and historical data.
As we all know, this “doom-and-gloom” scenario failed to materialise. This leads us to an important question. Are economists too far removed from politics to make accurate predictions in the future? It can only be assumed that fewer traders will be relying upon such information in the coming year.
A Shift Towards Exchange Traded Funds
From a very general standpoint, investors can be grouped into two categories:
- Those who trade in individual stocks.
- Traders who mainly utilise ETFs.
The main benefit with exchange traded funds is that they are comprised of a number of positions (such as forex pairs, commodity holdings or blue-chip stocks). Thus, they are sometimes seen as safer havens. We should expect to see a greater number of investors entering into such positions due to the rather unpredictable nature of how politics might play a role in 2017.
The International Trade Conundrum
Another way that politics could impact trading into the foreseeable future is the role that policymakers will play in determining the trade relationships between two or more sovereign nations. Once again, we will use Donald Trump as an example.
Much of his platform has been built upon reducing the trade deficit and reversing major systems such NAFTA. Although some will view this as simply weeding out unfair agreements, others are worried about the impacts that such a reversal will have upon the valuations of international companies. The reason that this situation is mentioned here is that such worries go far beyond Trump.
Some analysts fear that a trade war could develop between major regions of the world such as North America, Europe and Asia. This is actually not entirely unfounded, for some countries (China in particular) have already warned that any sudden policy changes could result in a tit-for-tat scenario. The impact of such a move would stretch far beyond the borders of the United States alone. Thus, traders will be looking at how such relationships are set to unfold and (if possible) predicting which assets they should move in order to avoid a losing position.
Geopolitics as a Whole
Now, let us take a step back. What can we infer from these rather discrete observations? Is the landscape of financial trading set to irrevocably change in the coming year? The short answer to this question seems to be “no”. However, there are some definite points worth noting here. Some principles that will likely emerge during 2017 include:
- Less of a reliance upon the predictions of economists and seasoned analysts.
- A diversification into exchange traded funds.
- Traders who are now keeping a closer eye on international agreements and negotiations.
In other words, technical and fundamental analyses alone will not be sufficient in order to make astute decisions.
All of these variables highlight the fact that investors need to leverage efficient platforms such as CMC Markets in order to keep ahead of the latest developments. Without such cutting-edge technology, it will be nearly impossible to make snap decisions when the time is right. The coming year should indeed be interesting in terms of the financial marketplace.
— This article was a guest post from David Sharp.
Thank You For Reading
Joe Marwood is an independent trader and the founder of Decoding Markets. He worked as a professional futures trader and has a passion for investing and building mechanical trading strategies. If you are interested in more quantitative trading strategies, investing ideas and tutorials make sure to check out our program Marwood Research.
This post expresses the opinions of the writer and is for information, entertainment purposes only. Joe Marwood is not a registered financial advisor or certified analyst. The reader agrees to assume all risk resulting from the application of any of the information provided. Past performance is not a reliable indicator of future returns and financial trading is full of risk. Please read the Full disclaimer.