2017: The investors’ year of political risk

For example, if you bet that share prices were going to fall last year, the risk to you was that you were wrong.

Our index managed to squeeze out yet another positive year, albeit a slight gain.

Asian, European and US markets kicked off the year on a positive note in contrast to one year ago.

While current indications are that 2017 could be another good year for stocks, we need to be cognisant of the political risks that are in store for the coming months.

While I do think stocks (especially European) could see an upside this year, I believe it’s going to be bumpy.

Political risk influences currencies, which in turn, influence share markets.

Here are some of the risks we need to keep an eye on:

Brexit

England’s exit from the European Union was a surprise in itself.

The problem is that leaders are still trying to figure out how to go about this divorce.

Markets have already “priced in” a negative economic effect as we saw the Pound Sterling hit multi-decade lows against other major currencies.

The reality is, this has never happened before.

Nobody has ever left the European Union.

So it stands to reason that all parties involved need to figure out the impact of this event.

The biggest problem England faces in terms of Brexit is what it will cost them to do business with the rest of Europe.

With a weakening currency and a slowing economy, political leaders will have to walk a tight rope not to get this wrong.

Adding to England’s conundrum is the “other” elections to take place.

There is little chance of them doing anything until the elections in France, Italy and Germany are out of the way.

All of these nations are looking at structural reforms which could influence the way the actual “exit” happens.

Donald Trump

The President-elect of the United States of America is unpredictable to say the least.

While his election has been perceived to be great for the stock market and American business in general, he is a wild card.

He has his own ideas when it comes to labour, taxes, healthcare, immigration and the way America does business.

It’s already a known fact that he wants to make extreme wholesale changes to legislation put in place by Barack Obama, the effects of which will only be known if and when they come to pass.

President Jacob Zuma

Our currency and stock market could be big winners in 2017.

In the event of Zuma’s reign coming to an end, we could see a big run in our market.

While most believe his castle is collapsing, the risk to local investors is that he hangs on and fights for his life to the bitter end.

Don’t try and predict the future

The year 2016 taught many that nothing is a certainty.

This year is most certainly not the year to “bet the farm” on anything or any event being a certain outcome.

Your strategy this year should be to react to news flow rather than to try to predict an outcome.

Also read:

2016’s ultimate market lessons: be flexible, expect shocks, cut your losses

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