A sunny outlook with cloudy skies. That’s how investors see their current investment prospects.
Economies in America, Europe and Japan have finally reached escape velocity: the worst of the 2008 global financial crisis is now in the rear-view mirror. The US Federal Reserve has also started its long-heralded policy normalisation. Markets continue to flirt with their all-time highs.
But investors remain nervous as unfamiliar political risks have emerged. The Brexit vote, the election of Donald Trump and the recent unexpected gains by the far-right nationalist AfD party in Germany mark the rise of a longforgotten phenomenon: populism.
Such a historic shift is always hard to discern at the time. Markets struggle to price its inherent risks until they materialise.
Populism is not a passing phenomenon but a structural feature of societies in which the gains of globalisation have been shared unevenly: a situation accentuated by quantitative easing by key central banks in this decade.