Geopolitical risk has gone up a little this year; but not enough to change investment strategy or our long term forecasts
The past six months has been marked by dramatic geopolitical surprises:
- Donald Trump’s victory in the US elections
- Britain voting to exit the European community
- The rise of right wing political movements throughout Europe with a breakup of the European Union becoming a distinct possibility.
Domestically, the Australian economy (as measured by GDP) has gone backwards for the first time since 2011.
The doomsayers in the media are again finding their voice.
Sharemarkets haven’t responded as many commentators expected over the past six months
The short-term sharemarket response to these developments has been just as surprising.
Most expected that Brexit would have sent UK share prices tumbling, that a Trump election would have sent world equity markets into freefall and a poor Australian GDP result would have sent Australian equity prices sharply lower.
In all three cases, exactly the opposite occurred. These results have confirmed to us the wisdom of ignoring the news, and instead focusing on valuations and potential for earnings growth over the very long term when making investment decisions.
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