Today (24.04.2017), Euro and French stocks surged on bets Macron will win the French election his rightwing populist rival. This is a politics gambling done by the financial market and the financial market has done such gambling many times already, sometimes they win and sometimes they lose. I want to talk about politics gambling of the financial market in general.
The financial market usually prefers moderate politicians, as radical and aggressive politicians are likely to lift the market uncertainties and risk. In addition, in terms of changing or not changing, the market prefers not changing. However, moderate election outcomes do not bring moderate market changes, and unpredicted or unfavoured outcomes definitely bring volatile market changes is undoubted.
There is no doubt that politics has great influence on the financial market; however, the influence of politics on the financial market is long term and moderately progressing over time. Usually, before and after a major political event, the financial market is likely experiencing a violent volatility in a short period; however, the market tends to moderate itself later. There is a classic example that after the Brexit referendum, the UK stock fell sharply but now it has risen above the pre-Brexit level. Moreover, the US election has shown that the financial market can be very changeful. When the financial market saw Hillary Clinton seemed to win the election for a greater chance, the financial market was happy about it; now, since Trump won the election, there has been a so-called trumpflation (rally) existing in the financial market.
Overall, I think when a long-term political change is happening (e.g. the US election, the Brexit referendum), a volatile market move is not a rational phenomenon, it is caused by investors and institutions making overdone imagination, prediction and estimation about politics.
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