I’ve been a broken record when it comes to suggesting that geopolitics will become an increasingly important driver of asset prices in the months and years ahead.
It’s not so much that geopolitical events haven’t always been a factor for markets, it’s just that when you have land mines like the Brexit referendum and the US election – both of which suggested voters in Western democracies are rethinking the merits of globalization – you’re bound to end up in a situation where outcomes are magnified in terms of their ability to influence financial assets.
These events are no longer idiosyncratic or country-specific. Rather, the very character of geopolitical outcomes has changed. Now, elections represent political “earthquakes,” (witness France) as opposed to contests between candidates that, when it comes right down to it, all believe in the viability of the global order.
When Western democracies are thrown into a state of flux, it has repercussions for those countries’ foreign policies. That, in turn, means that what were already tenuous situations outside of Western democracies, become even more tenuous by virtue of the fact that the message emanating from power centers like Washington, London, and Paris is no longer consistent.
Say what you will about whether this is ultimately a desirable state of affairs or about whether, over the long-run, a political “reset” will prove to be beneficial, but don’t pretend like it doesn’t make things more unstable in the short-run. Because it most certainly does. Witness how quickly the situation on the Korean Peninsula has escalated and how Donald Trump has suddenly forced the issue in Syria.
Well, in light of the above, I thought the following slide from a recent Deutsche Bank presentation was instructive or at the very least, useful as a kind of Cliffs Notes guide. Essentially, this sums up the geopolitical landscape the Trump administration is attempting to navigate and influence. It also highlights points of departure from the President’s campaign promises.