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Major Geopolitical Events Should Not Be Ignored By Markets


12/23/2019


Major Geopolitical Events Should Not Be Ignored By Markets
Farmers of the United States as well s investors on Wall Street would be hoping for a speedy implementation of the phase one of the US-China trade agreement. While the very fortunes of the farming population hinges on the trade deal implementation, investors of Wall Street also expect to reap the most of the record highs being reached at the stock markets whose bullishness is dependent of the trade deal between the two largest economies of the world.
 
There is even happiness and relief among Germans about the prospect of the reduction in the fire in the trade war between the US and China as they feel that there can be similar improvement in the trade relations between the US with its traditional trading partner the European Union as it has not been spared from tariffs such as the metal tariffs and threats of a trade war with some of the prominent EU partners such as France and Germany. What makes German economic strategists more hopeful of better trade relations with the US is their belief that US president Donald Trump will not risk another trade war with presidential elections this year and which Trump is hoping to win.
 
Further, Germany is also hoping that Brexit will help Germany protect its trade and business interests with the United Kingdom by the end of next January as the UK market is the second largest export market for Berlin after the US with the balance tilted in Germany’s favour.
 
However the politicians in the UK want to position the country as one of the major competitors of the EU in trade and business.
 
The US under Trump has used sanctions as a trade policy and therefore it is incumbent for the markets to factor in possible effects of sanctions on sales and profits when building up their assets. 
 
The Nord Stream 2 pipeline project is the latest example where one of the most important subcontractors for the construction was forced to withdraw because of US sanctions. This project is aimed to transfer natural gas from Russia to German directly through network of pipelines.
 
In addition to souring the political relations between the US and Germany, the US sanctions are also likely to significantly impact the profitability of the shareholders of the project that include companies from Germany, Denmark and France.
 
Further, very strong economic sanctions that cause dangerous security side effects are also situations that need to be handled very carefully by markets. The most prominent examples of this are the US sanctions against North Korea and Iran. Examples can also be found about a sharp division in the international community about the severity and scope of reduced power to access to world trade and finance of those countries.
 
While China and Russia demanded that US-North Korean negotiations should get going again after the lifting of some of the sanctions, the US disagrees. Washington had even asked Beijing to try and convince North Korea from making further tests of new nuclear weapons or ballistic missiles. That has increased the importance of China on a much larger US geopolitical platform where trade issues are only a small part.
 
Therefore analysts have suggested that changing geopolitical landscapes have to be factored into their portfolio strategy by successful investors. They wave warned investors against assuming that since the US stock market is booming despite the USW-China trade war, there would not be any impact of geopolitical events on asset prices.
 
(Source:www.cnbc.com)