Carmignac’s head of Cross Asset Team Frédéric Leroux has said economic cyclicality is back into the markets supported by growth and inflation and highlighted the 2017 strong political agenda during the company’s last quarterly meeting.
According to Leroux, events that have occurred and will happen on the political front reflect the economic cycle markets have entered.
“People want more freedom to some extent and a better life. They are fed up with the intervention of central banks which have been supportive of people holding financial assets but not all people hold financial assets.
“People who do not hold financial assets do not see that the intervention of the central banks has avoided a catastrophe but it has not created growth neither. The purchasing power of the middle class has been affected. Brexit, Donald Trump’s election and the no of the Italian referendum must be seen this way. Middle classes want to regain control, to see new policies, to get rid of politicians that created this environment,” said Leroux.
Carmignac’s head of Cross Asset Team warned traditional political parties shall anticipate the wishes of the middle class. If they do not act for the middle class, the middle class will vote for candidates of the far-right/left. He added that fiscal stimulus is to be expected everywhere an election occurs this year.
For Leroux, the “most dangerous” election in 2017 remains the Dutch general election that will be held on 15 March 2017.
“There is a real chance the far-right can win the election in the Netherlands and they clearly want to see the country leaving the EU. The Netherlands have a robust economy and show good figures; the only reason Dutch people would vote for the far right is immigration. It may be the final sign that the problem comes from there and it will be hard for the establishment to recognise it,” Leroux said.
What about France? “Zero probability Marine Le Pen can win the presidential election but I might be wrong,” Leroux answered.
He said it would be a big event if the Front National’s leader, currently ahead of the polls, wins the election next May. However Leroux explained things may change if Marion Maréchal-Le Pen, Marine Le Pen’s niece, runs for the French presidency in the future.
“Marion Maréchal-Le Pen is conservative on lifestyle topics and has a liberal view on economics. Traditional right-wing voters may be tempted to vote for her. If we look at the economic program of Marine Le Pen, I would call her a Bolshevik. Policies she wants to implement are pure marxism,” Leroux added.
He also argued a Merkel’s loss in the forthcoming German election would not be a problem as business will be back as usual in the country.
Brexit “not an important topic”
Leroux assessed that if the growth episode Carmignac anticipates lasts for long, it reduces the likelihood of a European crisis as “growth solves lots of issues”.
“If we face a new period of weakness for the eurozone, we can expect issues in particular in Italy,” he said, also foreseeing a threat to the existence of the euro in that case. A similar event to Brexit could eventually happen in other countries in Europe.
Regarding Brexit, Leroux stressed no one knows how will Brexit materialise concretely.
“We do not know what Theresa May wants to do. I do not believe it is possible the UK could become a tax haven. Also it seems impossible to remove the City and rebuild it elsewhere quickly. If the City is removed, France and Germany would not be the main beneficiaries but the US.
“Brexit has no direct consequences on the continental European markets. It is not an important topic for our global asset management view in the coming quarters,” Leroux said.
He specified: “From Britain’s perspective, the UK holds a very large current account deficit. Thanks to financials exports, it is not larger. If the City loses its role of main European financial center, it is going to be difficult. Financial services in the UK have no elasticity to prices, to a weak pound.
“A sterling depreciation will not lead to better competitiveness in the United Kingdom. It is the opposite of what you can see in the emerging markets when a currency crisis occurs. I believe the establishment would like to have more clarity on Brexit in order to avoid having other countries leaving the European Union or the eurozone.”
If Brexit does not form an issue yet, Leroux said it belongs to the big political wave we are currently seeing.
And he warned again: “People want politics that take care of them, help them maintain and improve their living standards and give them more purchasing power.”