Support for populist parties and rising political tensions across the world continued to climb on the back of increasing inequality and concerns about the impact of globalization. The rise of populism has contributed to growing geopolitical uncertainty, as evidenced by Brexit, recent global election results, the U.S. – China trade conflict, and the looming threat of tariffs. The long-term market and financial implications of the wave of these political risks remain to be seen; however, if the current dispute between the U.S. and China becomes a full‑scale trade war, it will adversely impact not just the U.S. and China, but the entire world economy. Key questions stemming from the rise of populism and geopolitical uncertainty include whether key emerging markets will continue their paths toward market-friendly reforms; how influential regulatory scrutiny of the dominant technology platforms will be; how the altered U.S. political landscape will influence calls for more regulations, wealth redistribution, and challenges to recent tax and regulatory reforms; and how trade disputes will be resolved and their impact on global markets.
Source: Economic Policy Uncertainty, policyuncertainty.com. ©2012 by Economic Policy Uncertainty. 1 Global Index through April 30, 2019.
Global Asset Allocation Views
• With elevated tensions, global markets have sought a delicate balance that could be upended by an unexpected event. To this end, we are cautious on equities as rising risks are not fully baked into current prices.
• Within the technology sector (a meaningful component of both U.S. large-cap and U.S. growth equities), challenges include disruption to supply chains due to unresolved trade tensions and potential regulatory risk. We have moderated our outlook for these areas as a result.
• We are overweight emerging markets equities, especially where the political background is improving. Developing countries, especially those in Asia, continue to benefit from globalization and are insulated from the wave of populism.