BOTTOM LINE
GLENN SILVERMAN: The return of geopolitics: buyers beware
Investors can no longer simply ignore geopolitics as they have safely done in past decades
Since the end of World War 2, geopolitics has been largely incidental to the rise in globalisation and the ascent of global equity markets. Significant global events such as the Cuban missile crisis (1962), the oil crisis (1970s), China’s rejoining of the global economy (from the late 1980s), and the fall of the Berlin Wall (1989) were once-in-a-decade events with a market impact, but overall investors have been largely able to either ignore or look past these events.
On the other hand, inflation has had a far greater effect on markets over time. Since the 1950s, in periods when US consumer price inflation was on the rise, US equity markets provided a muted return of 3.7%, as opposed to the far more compelling 10% return when the US consumer price index was slowing. The oil crisis was a geopolitical event which had a significant inflation effect and hence also a significant market impact. ..
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