Elections taking place around the world this year, most notably in the US and possibly UK, should not have a big bearing on investment markets, says Chris Metcalfe, chief investment manager at Iboss Asset Management.
Instead, it is the central banks, with the Federal Reserve at the wheel, which dictate the way markets swing, he says.
In a Q&A with FT Adviser In Focus, Metcalfe explains why this time round investors are calm about the prospect of a Labour government, and where the opportunities may lie in this year of elections.
FTA: A number of elections are planned for this year. Do you expect to see any effect on investment markets?
CM: Just like the markets are not necessarily reflected in the economy, neither necessarily is politics.
The greatest known unknown in 2024, and to markets, is the effect a Trump victory would have on the various global conflicts.
Again, it is difficult to plan for a situation that is uncertain in the first instance, and based on his first term, it's difficult to know what his response to the conflicts would be should he be elected.
FTA: Which other developments are you looking out for?
CM: Elections are similar to other geopolitical events in that while it might feel like you should be doing something, doing nothing might be the most prudent course of action.
FTA: What's typically more impactful, the build up to an election or the outcome?
CM: Regarding the upcoming elections in the UK and US, the best thing for investors to do is focus on what will move markets and avoid getting overwhelmed by sloganeering, petty point-scoring and the lowest common denominator politics during the build up.
Until truly extremist policies are inflicted on companies, there is little action an investor can or should do with their investments.
Where there are changes to be made at the margin, then active managers should have an edge and try to anticipate changes in policy.
FTA: What have previous elections, particularly in the US and UK, taught us about the build up?
CM: If the build-up to the last US election was less than edifying and somewhat depressing, unfortunately, we can expect worse in the months leading up to this one.
In the UK, the UK managers we have spoken to are fairly relaxed about the expected outcome of a Labour victory.
This is in stark contrast to the previous election, when some managers were concerned about the implications of a Labour victory under Jeremy Corbyn.
Following the Brexit vote, there was concern that the UK might be going down a more nationalistic road, but seven years later, the battle is between a Labour and Conservative party, with both of them having reasonably centrist agendas.
It is, instead, countries such as France, Germany, the Netherlands and Italy that are having to deal with a resurgent streak of nationalism and policy moving toward the right.
