Significant challenges for investors this year and beyond

In the first half of the year, geo-political unrest has dominated the headlines. There have been significant challenges for investors in recent months – geo-political upheavals, economic growth and monetary policy. Once the summer is out of the way, the attention will turn to domestic political uncertainty.

It’s been a big year for elections around the world, and now the political focus has turned up on our own doorstep. First the Scottish referendum in September, then next May’s General Election.

In between, November sees the US’s mid-term elections, which could bring America’s deficits to the fore again.

India showed us this year just how much politics can matter to financial markets. The prospect of a new business- and investor-friendly government under new Prime Minister Narendra Modi galvanised the Bombay exchange and resulted in big gains for those who jumped on the bandwagon early enough.
As is often the case, it has been better to travel than to arrive. Having surged since February in anticipation of the change of regime, markets have paused for breath since the result was confirmed.

Indonesia was a similar story, with markets rising ahead of the election of reformist candidate Joko Widodo.

The Turkish result was also preceded by a big run-up in the country’s stock market.

The latest opinion polls for the Scottish referendum suggest a vote that’s too close to call. A ‘No’ vote (continued membership of the UK) looks marginally more likely, especially after the recent TV debate. But it could go either way.

As for the General Election, a definitive result looks even more unlikely. Another hung parliament is a distinct possibility.

For the first time in many years, there is also a significant gap between the two main parties on economic policy, and the rise of UKIP raises the prospect of a fractured vote. It really is anyone’s guess how things will turn out next May.

A bigger question for investors is whether it really matters?