The past year has been marked by a number of defining political events. Wealth management experts, Banque Transatlantique, explain how these events form an intrinsic relationship with markets and the economy.
Since the beginning of the year, the Paris Bourse has risen by 11.8%, with a slight acceleration following the results of the first round of the French elections.
But this growth is not without parallels elsewhere.
The German stock exchange, for its part, has risen by 10.7% and the European exchanges index was revalued by 11.5% over the same period.
It is interesting to note that this development in the European markets has been virtually the same since the election of Donald Trump (respectively 22.75% for the French stock exchange, 20.9% for the German stock exchange and 20.5% for the European exchange), which would seem to prove that Europe has become a fully-fledged, genuine economic zone and that political events which affect one country have immediate repercussions for the other countries.
More specifically, the European stock exchanges reacted in unison to the French election polls. When extremist, anti-European and anti-euro parties made progress, they declined, and, conversely, they rose when polls were more favourable to pro-European parties.
Future political events seem less concerning than those which we have just come through in the Netherlands and in France as it is highly likely that, in September, Angela Merkel will win the German elections. There is nevertheless one hurdle to clear: the Italian elections. These could be held in December with, again, a confrontation between an anti-European party and a pro-European party.
It is, then, the economy which should drive the European exchanges in the months to come and, from this perspective, the situation is undoubtedly improving. The latest statistics published reveal growth of 0.8% in France, 1.7% in Germany, 2.9% in Spain and 0.8% in Italy during the first quarter.
Companies are also delivering very robust results. Air Liquide, for the first quarter of 2017, has achieved an increase in turnover of 1.5% compared with 2016 data. Essilor is up 2.4%, Accor by +8.4% in Europe and Adecco, the temporary employment agency (a sector often considered as an advance indicator of the climate) anticipates 6% growth in its activity over the year.
The healthy economy is not a solely European phenomenon. Growth figures are also positive for the United States (+0.8%), China (+6.9%), and growth can also be measured by figures published by companies (+24% in the case of Amazon, +2.3% for Nestlé, + 15% for LVMH).
Last but not least, business conditions: interest rates remain very low worldwide, which enables economic actors to borrow at good rates in order to invest or to spend.
So, all is well in the best of all possible economic worlds?
Today, sources of concern emanate from the United States. Donald Trump has initiated a politics based on revived demand: major public works and, above all, reductions in corporate and household taxes enabling companies and individuals to increase their disposable income. But the President of the United States is struggling to implement his reforms. After the failure of his immigration policy and the partial failure of his reform of Obamacare, observers are questioning the fate of the new tax policy. The outcome will depend on the American financial markets environment, of course, but also on European markets. If Donald Trump succeeds, spending will increase and corporate profits will improve under the combined impact of increasing turnover and reduced corporate tax. In this way, the upsurge in the markets will continue despite a probable increase in deficits and inflation.
In contrast, if Congress does not follow Donald Trump, there will be a downturn in the markets, their expectations frustrated.
We are, therefore, entering a period of political uncertainty, but, this time, the United States and the markets could be the most debated issues in the coming months.
Which goes to show that politics, the economy and markets are undoubtedly linked, and at a global level.
Finalised and edited on 15/05/2017.
What Banque Transatlantique can offer may be of interest in terms of your aspirations as an investor, get in touch with your contact in Hong Kong to learn more about how we can help.
BANQUE TRANSATLANTIQUE, REPRESENTATIVE OFFICE
See below for more content from the French Chamber.