The intersection of
politics and markets

Investors have mostly shrugged off a series of political upsets – from Brexit to US President Donald Trump’s surprise election win. Yet these developments have long-term consequences, as we explain in our new piece Politics not quite as usual.

There are fundamental questions about the future of the European Union (EU) and how to address the complex root causes of populism and nationalism. An increasingly transactional U.S. approach to foreign affairs, waning support for free trade and uncertain prospects for U.S. tax reform also have big and differentiated implications for economies, sectors and companies. The coming year alone brings a mosaic of elections, monetary policy decisions and geopolitical hot spots. See the map below.

Mark your calendar
Events and geopolitical risks to watch in 2017 and beyond

Source: BlackRock Investment Institute, May 2017.

Key highlights

• We see diminished political risks in the short run in Europe, and potential for some growth enhancing reforms in major economies around the world. Some of this good news is already priced in, but we expect a steady and synchronized global economic expansion to underpin risk assets for now.
• Longer term, we see significant risk of populist policies that would hurt business, such as restrictions on trade and immigration. A new U.S. administration challenges long-time security and trade arrangements, and we see North Korea’s nuclear ambitions as the top security threat.
• We see fading prospects for comprehensive U.S. tax reform amid legislative gridlock and distracting probes into ties between White House officials and Russia. Yet depressed expectations lower the bar for positive surprises, and we see regulatory easing as an under appreciated force in business and markets.
• Europe may have its best opportunity in decades to push through reforms that make the EU more sustainable and effective. These are much needed to deal with rising populism and any economic deterioration. Potential flare-ups are Italy’s fractious politics and a possible "no deal" on UK Brexit talks.