Threats of a US Federal shutdown remind investors there is a world outside of China
Michael Staines, Investment Director at Heartwood Investment Management, comments on the rising tide of anti-establishment politics around the world…
Pope Francis' visit to Washington DC last week was perhaps well timed as he sought to appease both Democrat and Republican concerns alike in a historic speech to Congress. The divisive nature of Washington politics had been resurrected in the days leading up to the Pope's speech, as hard-line Republicans sought a US Federal shutdown if a new funding budget could not be agreed by September 30th. Ironically, the dispute centred on the ethics of funding a planned parenthood organisation. The resignation of the moderate Republican Speaker, John Boehner, has all but eliminated the likelihood of a Federal shutdown, as the outgoing Speaker has stated that he will endeavour to work with the Democrats to achieve a compromise. A funding crisis has been averted for now, although the issue is not yet resolved and another political standoff may still loom as the debt ceiling deadline approaches on December 11.
The significance of US political events illustrates the rising tide of anti-establishment politics globally, whether on the left or the right of the political divide. The re-election of Alexis Tsipras' Syriza Party to government in Greece, the success of the pro-independence parties in Catalonia's regional elections and, closer to home, Jeremy Corbyn's election as leader of the Labour Party provide further credence to the view of a fragmented political landscape. Globalisation and the impact of digital technologies are supplanting the top-down political machinery, so dominant a force over the last twenty five years, and redefining 'grassroots politics', with its much broader reach and impact facilitated through social media.
What does all this mean from an investment perspective? Markets largely ignored the threat of a Federal US shutdown, as other headline events in Europe also garnered interest but have so far not caused undue concern. However, what the political events over the last week have shown is that as markets become overly-focussed on one factor, namely China's economic slowdown, other issues can arise unexpectedly with the potential to destabilise market sentiment, particularly during an environment of heightened volatility. Long-term resolutions to many of these issues, whether it be the US debt ceiling or Greek sovereign financing, have yet to be found; meanwhile, the Catalonian election result casts more uncertainty regarding the fragile nature of politics across Europe.
As ever, these issues all have the potential to create volatility and headwinds in the period ahead. However, at any stage in the cycle it is possible to compile a list of issues that market participants may worry about. On balance, and in spite of some risks, we see current markets as offering opportunities to make gains over the medium term.