GUEST BLOG: Instability – the new normal for global investors

By Naeem Aslam, chief market analyst, ThinkMarkets 

Investors have been extremely anxious about the political uncertainty which has emerged throughout the year.

Usually, if you do not like uncertainty, you will stay on the sidelines and let the situation play out its course before looking for an opportunity to get back into the market. Alternatively, you could always place a hedge on your portfolio and stay in the market.

By looking at the current situation we can say that there are major political risks which investors are highly concerned about and each one of them is in a different part of the world.

Let’s look at them from each perspective:

Unstable Middle East
A rout in oil prices has really changed the landscape for the Middle East. Countries previously deemed as stable and wealthy have lost their status and are facing more political uncertainty.

Saudi Arabia is running a budget deficit; the price of oil need to be near the $100 per barrel mark in order to balance the budget. Given the supply gut we have on the market, it may not be far stretched to say that those days are long gone and the new reality for the price of crude is between the $40-55 mark.

Thus, the kingdom is trying its best efforts to diversify its economy and rely on other sources of income. The government has increased taxes and reduced subsidies for public welfare and this is where the biggest threat comes from for the kingdom.

It will not be long before we see similar rallies against the government which caused havoc in Egypt and calls for democracy. The Saudi royal family has ruled the country for decades and democracy will be a real change for its people. In the longer term, democracy could bring positive changes for the region and the fights between Shia and Sunni could ease off.

Unstable Europe
Brexit has started the process of EU disintegration and this has brought serious uncertainty for the market. From a political point of view, there is no assurance as to what role the UK will have in the EU after Brexit. The newly appointed prime minister, Theresa May, is trying her best to start a pre-negotiation process with the EU, but she has been told that the EU leaders are in no mood of entertaining such antics.

The UK needs to make sure that it maintains its ties with the EU

What we need now is for the EU leaders to make sure that there are no contagion risks caused by Brexit. We don’t want to see other nations following follow the same path. The UK needs to make sure that it maintains its ties with the EU.

Given the political stance which each side holds, this is the most challenging environment for markets, but traders are not paying too much attention to this.

The US elections

Naeem Aslam

The US has always played its part in global affairs as a superpower and the upcoming elections carries uncertainty. The two candidates, Hillary Clinton and Donald Trump, have very different views about how they want America to play its part.

The US has always played its part in global affairs as a superpower and the upcoming elections carries uncertainty

With Clinton, we have some assurance what the country will look like given that she was a foreign secretary for the country. She is very much in favour of uniting people and working with other governments and trade organisations.

However, Donald Trump on the other hand, has picked up the most amount of attention by fanning the flames on some sensitive issues.

His comments have upset both Americans and the global community. Despite this, he has a huge following in America, and if he gets to power, we could see some serious consequences for the US if he maintains his same stance.

Photo (main): Sam Valadi