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Weathering the Storm: How Political Climates Affect the Financial Markets

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There are numerous factors that can potentially have an effect on financial markets and which traders have to be aware of. They can range from extreme weather events, terror attacks, corporate announcements, all the way to the political climate of a country. In most of these scenarios, the ramifications for an economy and the subsequent reflection in the stock markets can be relatively predictable – we expect to see a drop in stock prices when a disaster hits , for example. When it comes to the political climate, however, things become a whole lot less predictable. This is due to various reasons, not least because of the inherently fickle nature of politics itself and the sometimes vast differences in the political cultures and traditions of different countries.

To get a sense of just how a country’s political climate can affect various aspects of a nation’s economy and its financial markets, we’ll take a practical recent example of the USA following President Donald Trump’s election in November 2016. It serves as an interesting case study due not only to its unexpected nature which highlighted the basic unpredictability of political climates, but because it brought about some very interesting reactions and results from businesses and the financial sector in general.

Growth Expectations

A general statement can be made to the effect that a country’s political climate and its economic environment are closely related. Investors, no matter how large their risk appetite, like to have a reasonable assurance of their money’s safety, which is why stock markets are usually the first industries to react to any political climate changes. In fact, research suggest that stock markets follow a predictable general pattern along a four-year cycle punctuated by the Presidential Elections in the USA and perhaps many other countries worldwide, with the market showing signs of increased caution as election season comes around.

Following President Trump’s unexpected victory, many organizations held the hope that the bold fiscal proposals he had talked about during the campaign – including increased spending and tax cuts – would serve to boost the country’s economy. The Federal Reserve actually went ahead and increased interest rates in anticipation of the changes, showing how even the promise of a policy change will directly be felt on the financial market.

Anticipated Regulatory Changes

When a country undergoes a significant political change of pace, it is expected that this will come with significant regulatory standards and practices. It is widely acknowledged that increased government regulation and bureaucratic interference in a country’s economy and industrial activity will usually result in a slowing down of the economy in question.

President Trump had poised to relax the regulatory framework in the country as well as consolidating the numerous bodies tasked with formulating the regulations to make it easier to do business in the country, and this came as good news to organizations and their stakeholders.

Political Stability Concerns

Political stability has a very real effect on the state of businesses within an economy, as we can all agree. While many business owners and stakeholders were encouraged by the promise of deregulation and fiscal policy reform, many were also given cause for concern when it came to the President’s apparent pattern of unexpected and inconsistent policy decisions.

His stance on immigration, promise to wall of the USA’s southern border with Mexico, and his abandonment of previous trade deals all went into fueling anxiety and a sense of uncertainty in the financial markets. This was especially felt in the case of organizations with a global business presence. These feelings decrease investor confidence and often lead to a depreciation in stock market values as the more risk-averse investors keep away.

In Conclusion

When looked at in totality, countries all over the world face the same types of political risks. We’re not talking about complete government collapses such as might occur in times of a coup, but relatively smaller yet high-impact moves and policies by governments on matters such as regulation, currency valuation, taxes, spending, minimum wage laws, labor laws, environmental regulations, and the like.The financial market of a country, being highly sensitive to such shocks, can register an impact when such actions are merely proposed, without their implementation having taken place yet. The impacts may be long or short-term, but they are definitely felt throughout the financial markets.

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Student @ Advanced Digital Sciences Center, Singapore. Travelled to 30+ countries, passion for basketball.

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China

Ridiculous Tariffs on Wines – China Australia Trade War Explicated

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China Australia Trade War
Scott Morrison (right) has not yet been able to secure a bilateral meeting with Chinese President Xi Jinping (left).(ABC News)

Earlier in November 2020, Communist China slapped Ridiculously high tariffs up to 212.1% on Australian wines. These tariffs were in the response of ongoing trade war between Communist Party of China and Australia. China is the biggest importer of Australian wines making up a whopping 39% of Australia’s total wine export. Australia has already raised concerns at a WTO meeting about China taking measures against its barley, wine, meat, dairy, live seafood, logs, timber, coal and cotton, according to a reuters report.

How did China – Australia trade war begin?

China and Australia shared one of the best times in their relationship after Kevin Rudd from the centre-left Labour party came to the power in Dec 2007. During his leadership Australia decided to pursue appease China policy which included steps such as:

  1. Chastising Taiwan for its renewed push for independence and reiterating support for a one-China policy in favor of People’s Republic of China. (Source: The Age)
  2. Signing a A$50 billion deal with PetroChina in 2009 (largest contract ever signed between the two countries) that ensures China a steady supply of LPG fuel until 2029.
  3. Unilaterally announcing departure from Quadrilateral Security Dialogue to appease China.

Nosediving of China – Australia Relationship

The course of this partnership changed when Julia Gillard from the centre-left Labour Party took over the leadership and initiated closer partnership with United States. This included revival of interest in Joining Quadrilateral Security Dialogue and stationing of US troops near Darwin, Australia.

In 2013, Tony Abbott from centre-right Liberal Party took over the leadership. During his term Australia saw some confusion in its China Policy. His Defence Minister Senator David Johnston told in a statement that Australia is seeking to balance their relationship between China and the United States. It was during his term when Australia and China established a Free Trade Agreement.

However, the relationship between Australia and China took a downturn in 2015 when Malcolm Bligh Turnbull from the centre-right Liberal Party came into power. This is the point in history which has led to current trade war situation between Australia and China.

  1. Australia became the strongest opponent of China’s territorial claim in South China Sea.
  2. Banned foreign donations to Australian political parties and activist groups in a move to target Chinese interference in Australian democracy.
  3. Revived Quadrilateral Security Dialogue with United States (Donald Trump), India (Narendra Modi) and Japan (Shinzo Abe). This was the time when Quadrilateral Security Dialogue saw hope of becoming something bigger as all four countries had centre-right governments who had a clear China Policy.

2019 Onwards: China – Australia Trade War

In 2019, relationship between the two countries further took a dip with Scott Morison from centre-right Liberal party becoming the Prime Minister. During his leadership:

  1. Australia signed a letter condemning China’s mistreatment of Uyghurs and other minorities.
  2. Suggested investigating the cause of Covid 19 in April 2020, which resulted into an angry response from China threatening to reduce Tourism and Trade.
  3. Opposed the Hong Kong National Security Law in June 2020.
  4. Reiterated its support for ethnic minorities in China and freedom in Hong Kong in October 2020
  5. Demanded a formal apology from China for posting a fake image of an Australian soldier holding a bloodied knife against the throat of an Afghan child

In conclusion, these continuous attack on China made China so angry that they deliberately leaked a list of 14 points suggesting why China is angry at Australia

China’s attempt at “buying” left wing politicians around the world

Recent trend is suggesting China’s attempt at “buying” influential left-wing politician around the world. In November, 2017 Australia’s Labour Party’s MP Sam Dastyari went against his own party on South China Sea. He later quit his party after he was found of taking financial favours from China.

In 2008, India’s Centre-left party – Indian National Congress signed a Memorandum of Understanding with Communist Party of China. Its contents are still hidden from the Government of India and the people of India.

Recent US Report has shown concern on President Elect Joe Biden not clearing doubts on his China policy.

How Can we Help Australia Post Ridiculous Tariffs on Australian Wines?

In 2020 China has directly or indirectly impacted many of our lives. Some of us have lost our jobs, some of us are taking a reduced salary. In fact, some of us are sitting at home instead of travelling; while some of us have lost our loved ones only because of communist party was incapable of controlling a virus outbreak.

As the entire world is struggling with this virus, Chinese economy continues to be on path of surpassing the US. Therefore, we should pledge to minimize buying Chinese products. It might be impossible to completely boycott Chinese products, but we can at least minimize it.

Install Cultivate Chrome Extension (non sponsored/affiliate link – We are not getting paid to post this). This plugin works on both Google Chrome and the new Microsoft Edge. It helps you understand the origin and seller location of a product on Amazon. It is a great tool to minimize your dependence on Chinese products. If you are lucky, this extension will also suggest some Made in USA alternatives

Buy Australian Wines – Australia desperately needs a new market for its wine and other products. This New Year and Christmas season, we should pledge to celebrate with at least one Australian wine!

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Economy

Seasif’s Franco Favilla discusses the post-Covid economy and the price of gold

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Although the Covid-19 pandemic isn’t over yet, there has been much discussion on the idea of a “post-Covid” economy, especially with the beginning of vaccination efforts in some countries. With markets throughout the world suffering the economic effects of the virus, experts have been looking towards the future –– and one of the topics that often comes up is the price of gold.

In August, the price of gold exceeded US$ 2,000 an ounce for the first time, driven by multiple factors. However, in November, advancements in Covid-19 vaccines led to a decrease in this trend, a result of the turbulent period we are going through.

“Regardless of the market volatility and the price changes that could occur over a given period of time, the fundamental fact is that the price of gold over the course of 2020 has reached an all-time high, and this, in my opinion, is very good news for the world economy,” explains Franco Favilla, founder and CEO of Seasif, a multinational company active in the extraction and trading of gold and oil.

According to Mr. Favilla, the main problem of the pre-Covid economy was the completely arbitrary nature of international finance. At one time, a ton of gold corresponded to a ton of currency, but since the 1980s, and at an impressive rate since 2000, the gap has widened enormously, so much so that today the relationship between the world’s currencies and gold is enormously unbalanced.

Total gold reserves around the world cover only 30% of currencies. This means there is nothing to cover and guarantee the value of money. In short, money has turned into a pure convention, a pure agreement between parties acting outside the market. Gold, on the contrary, guarantees democracy, because it protects savers and the market, offering an objective value for parameterizing every transaction. 

“My hope, therefore, is that the crisis caused by Covid-19 will help to change finance, making it less ‘phantom’ and more linked to an objective dimension, based on gold, with obvious advantages for the real economy. Gold protects consumers, the most important component in any economic system: if you don’t have a market made up of consumers with a certain level of wealth, how can you sell? To whom? Consumer protection must come first, and gold is one of the main ways of protecting them,” states the CEO of Seasif.

Sustainability has also been at the forefront in discussions about the post-Covid world, as countries look towards establishing a more resilient global economy, one able to better withstand such events in the future –– and “green gold” may well be a part of that future. Green gold, in a sense, can be considered the “gold of the future” due to its ethical and sustainable extraction process. Seasif produces green gold, with a department entirely dedicated to green, and has allocated economic incentives to its continued production.

Even as 2020 draws to a close, the future may still look uncertain. But for those searching for greater security, gold may be one of the few certainties left.

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Economy

How to Trade Shares for Beginners

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stock trading

Although expectations had been modest for 2019, the stock markets around the world had been active in 2019 and the positive returns seen so far have exceeded even the most optimistic expectations. Supported by easy monetary policies around the world, as well as by positive economic expectations for 2020, stocks continue to move, which makes a significant number of people deciding to start investing. Since stock trading is much harder than most of them think, let’s see some of the most important things beginners must consider in order to accelerate their learning curve.

Stick with the most liquid shares

Finding “the next big thing” is one of the illusions that seduces most of the beginners. They spend a significant amount of time looking for those companies that will have huge returns over the next months of years. Not even the most-skilled stock traders are able to do that, so why do you think you will?

Instead of looking for those shares, stick with the companies that already have a leading position in the industry. Google, Facebook, Microsoft, Apple, and Boeing are just some of the names that are popular at the time of writing, and looking at their performance in the long run, so far, they’ve managed to impress.

Study educational materials

Beginners fail to understand that share trading is a skill-based endeavor and study is one of the most important parts of the process. Study as many educational materials as you can and gain as much knowledge as possible because you’ll definitely need it. This guide and other similar ones will introduce you to share trading and help you understand the basic concepts. Remember this axiom: “Around 90% of the traders lose 90% of their capital in their first 90 days of trading”. Education is one of the main factors why beginners stumble into the same mistakes over and over again. You don’t want to be in the same position as most of the people who don’t learn and spend time to sharpen their skills.

Build a portfolio

Closely linked to our first tip, building a portfolio of uncorrelated assets is one of the most important things to consider, if you want to limit the damages of your mistakes. No matter how good you are, in trading, you won’t make money all the time. Diversification will help you minimize the effects of some losing trades. Don’t concentrate all the risk in a single stock and instead pick at least three or four names that might perform positively in the near-term.

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