Opinion: What politics can teach us about the investment trends of the future
It’s easy to get caught up in short term, news-driven moves in markets that last for one or two days before the next big thing comes along to rattle financial markets. Recently it has been the US-China trade spat and the big move lower in treasury yields that have knocked investor confidence. These events might drive markets in the short term, but the savviest investors keep their eyes on the bigger picture and are on the look-out for the epoch-defining trends of the future. These trends that may not have formed fully yet, they may not even have a name, but they will be the key drivers of wealth creation in the coming years.
Developing trends to watch out for
We think that a few of these trends are currently developing right now, which will have the power to drive consumption, corporate profits and equity markets in the next 5 years. In Minerva’s view, companies that can latch onto this trend will be the stand out performers of the future.
Why Brexit does not mean Brexit
This theme has been clearly evident in recent political elections. The first election where we saw the kernel for a new trend emerging was the 2016 EU referendum in the UK. The interesting part of that vote was not that the UK voted to leave the EU, it was the youth vote. The turnout for those aged 18-24 was staggering, according to Opinium and the LSE, at 64%, it was far higher than expected. Also, worth noting, 70% of this age group voted to stay in the EU.
What can we extrapolate from the Brexit results?
Firstly, young people are waking up to the political reality in the UK after decades of political inertia. Secondly, they don’t want Brexit. This means that even though the UK is set to leave the EU later this year, Brexit is not worth investing in for the long term. As the youth vote grows, and the older voters who voted to leave the EU die off, Brexit could easily be reversed. This also means, in our view, that Brexit supporting parties in the UK, such as the Conservative Party, possibly won’t exist in their current form in the coming years, allowing new political forces to take over.
But what does a vote to remain in the EU mean for financial markets?
It means liberal values and support for the freedom of movement of people, it also means that the isolationist politics that seem to take over in the UK these days is unlikely to last. The good news is that liberal values tend to be market positive. Thus, even if Brexit drags the UK’s economy into decline, this may not last once the youth population comes of age and takes over our political institutions.
Why the Trumps of the future could be kept out of office
I can hear some people cry, what about the US? Surely the election of Trump is a sign that populism is taking over the world? We would argue that the youth vote in the US is not as mobilised – yet- as it is in the UK. This is partly because first- and second-generation immigrants in the US, who may not speak English, or feel confident enough to vote in national elections, make up a vast majority of the US’s youth population. According to US based Migration Policy Institute, Mexicans make up the vast majority of immigrants to the US at 25%. The average age of immigrants in the US is higher than the overall population at 44.8 years, versus 36.2 years for the native born population, however, a significant share of under 18s in America are born to immigrants, which makes them a powerful voting force in the future, thus a Presidential candidate who shares the views of President Trump may not get far in the polls in the years to come.
What markets may look like without Trump
Donald Trump’s policies have sent markets sky high, but his extreme policies are now starting to bite, and we could see markets tank during his tenure in the White House. If volatile characters inhabiting the White House, such as Donald Trump, lead to boom and bust market cycles, more moderate Presidents in the future may see volatility decline and future stock market performance in the US could be more even.
The second political event that could drive markets
The recent European Parliament elections may also have a big impact on the future of investing. Not only did the far-right extreme parties fail to gain a significant foothold in the European Parliament, super liberal Green parties did exceptionally well, coming in fourth place overall with a respectable 9.2% of the vote. This makes the Green parties a loud voice in Europe for the next 5 years.
Greens are the new kids on the block
From an investing point of view, the fact that European voters are moving towards the Greens means that we may see Europe focus on environmental policies in the coming years. Thus, the Paris accord on climate change is far from over. The focus on eliminating greenhouse gases, shifting to greener forms of energy, and support for more environmentally-friendly consumption patterns have the potential to impact a vast number of sectors in European stock markets including energy, mining, consumer goods and even telecoms. Companies that are seen as wasteful or environmentally damaging may suffer in the coming years. Social media companies could also be affected since some of them suck up advertising revenues thus encouraging rampant consumption, which we believe will become socially distasteful in the coming years.
Minerva believes that producers of biodegradable consumer goods, such as plastic packaging and other consumer items, could be the big winners in the stock markets a decade hence. Whereas firms that make single use plastic items, this includes toy makers and consumer goods companies such as Unilever, could struggle if they don’t shrink their environmental impact.
To conclude…
This article merely scratches the surface of this topic. Times are changing in Europe, and we believe that the US will catch up. The voters of tomorrow want liberal values to persist and they are more environmentally aware than any other generation. Financial markets have a lot of catching up to do, but the outlook is not as bleak as some will have you believe.