Select your website




Coming Soon: A New Website for Amundi Pioneer   Learn More »

CIO View: The Dominance of Politics: Investment Implications

August 16, 2018

In this new era of the dominance of politics vs. economics, new forces are at work to influence the markets. Read our analysis of these forces and the potential implications they may have on investments.

Download our Complete August Global Investment View >> 


Concerns about trade continue to take centre stage. While US assets have so far been resilient amid escalating protectionist rhetoric, markets targeted by tariffs are under pressure. We still don’t believe a full trade war is likely and we still expect decent economic growth, though decelerating and less synchronised, and with only mild inflationary pressure. But, trade disputes could impact business confidence and investment plans, interfering with central banks (CB)’ interest rate normalisation processes.


Trade talks are just the tip of the iceberg in a more complex geopolitical world. In our view, we have entered a new era of the dominance of politics vs economics. New forces, more inward-looking, with nationalist nuances are now underpinning new political agendas all over the world. Bilateral relationships are likely on the rise vs multilateralism; threats to globalisation could come more into play. This new order could influence markets in many ways. First, due to permanently higher levels of geopolitical risk. These risks are not easy to price and can create short-term volatility, but also have long-term implications. This means that predictability of a central scenario that underpins investment decisions decreases significantly, and with it, the opportunities for strong directional risk exposures. Second, due to trade tensions, global growth will not necessarily lead to global trade growth. This new order, with forces at play pointing to further fragmentation, resulting in divergences in economic and market performances, implies a reorientation of strategies towards more domestic/autonomous stories. International diversification that did not work properly in the last 30 years, due to correlation of markets to global trade factor, should do better going forward. Global and diversified approaches become paramount to taking advantage of opportunities in this new framework. Third, on a medium-term perspective, the more proactive/expansionary fiscal policies promoted by the populistic wave will put pressure on public debt and fiscal sustainability. This is of particular concern considering that total global debt skyrocketed to USD 250tn in 1Q18. Fourth, we may see mounting political pressures on CB, especially in the US. The threat to CB autonomy and credibility is a risk not currently priced into the market. Deficit and debt monetisation could become the ultimate temptation.


In conclusion, the scenario for investors is becoming increasingly complex. In the short term, it looks to be too soon to call an impending bear market. It is important to exploit opportunities in areas that can still benefit the most from the extension of the cycle (US equity) and rotate towards new themes (sector divergences are relevant, and in Europe, we have already seen a rotation towards defensive sectors). For long-term investors, looking for entry points in asset classes that have already discounted most of a gloomy scenario (EM assets) is a key strategy to add value, with a focus on bottom-up selection. Due to higher risks on the horizon, enhancing the resilience of portfolios – i.e., improving credit quality, increasing liquidity buffers and further reducing risk concentration -- is becoming paramount in order to try to protect investor assets.

High Conviction Ideas

  • Multi-Asset: Geopolitical uncertainty and a maturing financial cycle call for limited directional exposure on risk assets. We see three themes for the next few months: 1) play the last phase of the cycle by focusing on equity markets with stronger earnings growth (US equity) or rotating to value in Europe; 2) play CB divergences (shorter duration view in the Eurozone, close to neutral in the US); and 3) be selective on EM (positive on China equities vs EM). Hedges remain crucial to try to protect portfolios from overall risk-off situations.
  • Fixed Income: Concerns about trade are preventing yields on core govies from rising. We keep a short duration view (more so in Europe) and we have reduced credit risk, with tighter liquidity ahead. Currency volatility dominates in EM, affecting FX for countries with higher current account deficits. We are cautious on EM bonds in the short term; we see possible entry points opening up in the autumn.
  • Equities: Trade tensions drive divergences in market performances. Earnings per share growth is still strong, especially in the US, our favourite region. However, the cycle is maturing, with diminishing liquidity and rising costs for corporations. The outlook for equity is still overall constructive on a relative basis. But, as volatility is expected to increase, we encourage a cautious approach, with limited risk concentration in specific regions/sectors and a focus on quality and stock picking.
  • Real Assets: In search of additional sources of diversification, on a long-term perspective, energy transition infrastructure is, in our view, a theme to consider. Environment-themed investments have increased considerably in Europe over the past five year. This situation is consistent with the objective of increasing infrastructure spending and pursuing sustainability within a supportive regulatory framework.


Important Information


The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this  information.Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. (


Diversification does not guarantee a profit or protect against a loss.


Unless otherwise stated, all information contained in this document is from Amundi Asset Management and is as of July 17, 2018. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management, and are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading on behalf of any Amundi Asset Management product.

There is no guarantee that market forecasts discussed will be realised or that these trends will continue. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested. This material does not constitute an offer to buy or a solicitation to sell any units of any investment fund or any services.


Keep Article

Social Sharing

Contributing Authors

Pascal Blanque
Group Chief Investment Officer, Amundi


Vincent Mortier
Deputy Chief Investment Officer, Amundi