The global capital market seems to have entered the era of “political market”. As the political uncertainty escalates, the investment environment this year has become increasingly difficult to grasp.
In Europe, Italy’s political chaos has become a source of turbulence in the recent global capital market. The two major populist parties jointly formed the government, only to be confronted by obstacles. After the Italian president vetoed the appointment of the finance minister, the two parties agreed to form a coalition government to avoid reelection. However, there are still many uncertainties. On the issue of who should serve as the prime minister, the Lega Nord wishes that it would be someone from its side, while the Five Star Movement disagrees with this. The two parties are in a political game; one of the parties is on the extreme right of the political spectrum, and the other one is on the extreme left. Differences in policy ideas could be the source of political turmoil, which will directly affect economic and market confidence. According to Bloomberg's estimations, the spending plans proposed by the two populist parties alone will, by 2027, increase the debt-to-GDP ratio of Italy from the current 130% to 177%. When debt is too high to bear, the option is only either Italexit or the breach of contract.
The dispute between the United States and the European Union, especially with Germany, is another important change in the geopolitical landscape. Germany and the United States have differences in various areas. First, in terms of tariffs on steel and aluminum, the United States insists on refusing to exempt the EU, which will increase the rift between the United States and Europe. Second, there is a clear disagreement between the Trump administration's values and the Western values represented by Germany. Third, more and more EU leaders believe that the EU cannot rely on the United States on security issues and that they only have themselves to depend on. Anbound’s research team believes that the widened rift between the United States and Europe may become the most serious disagreement between the two sides since the end of the Second World War. Before this Anbound had pointed out that the increase of the differences between the United States and Europe will push forward the formation of the global “1+3 Paradigm”.
China-U.S. trade disputes will be another factor that affects the confidence in the global market. The trade disputes between the two major powers are never only about trade war. Begins as trade issue, this ‘game’ has evolved into the China-U.S. war of technology and the protection of intellectual property rights, which will eventually become the conflict between the two countries' overall strength; leading towards strategic suppression of the rise of China’s overall national strength. In the national security report issued by the U.S. Department of Defense earlier this year, it is clearly stated that the future strategic focus of the United States shifts from counter-terrorism to dealing with its long-term strategic competitor. This strategic competitor of course is China, which ranks second in the world in terms of economic scale.
The situation of the Korean Peninsula is another geopolitical hotspot. Recent rounds of historic talks between the leaders of the United States and North Korea show many twists and turns. On May 24th, Trump sent an open letter to Kim Jong-un to call off the meeting. It was alleged that on the second day after Trump issued the letter, Kim Jong-un issued a document to the leading cadre of the Ministry of Foreign Affairs condemning his ability to work. Allegedly, Kim Jong-un said that, “if the North Korea-U.S. talk is done in excessive self-confidence and in Ministry of Foreign Affairs style, in this era of rapid changes it would be difficult to achieve the decisive situation that our Party hopes for, and we will encounter unexpected difficulties”. Kim Jong-un is also said to point out that, “If we use the old diplomatic tactics of the past to deal with the North Korea-U.S. talk, we cannot gain the trust of the United States which is in long-term hostility with us; it will only produce diplomatic differences”. Since then, South Korea’s urgent mediation has taken place. Both the United States and North Korea have made their respective statements, basically confirming that they will continue the talk. However, it is generally thought that North Korea is unlikely to meet the U.S. requirement for “open, verifiable, and irreversible” denuclearization. If this is the case, the North Korean nuclear issue may still revert to its starting point, which will once again cause new geopolitical turmoil.
The Syrian situation is also a political hot spot. Syria, Russia, the United States, Turkey, Israel, Iran, the United Kingdom, and France all participate in this geopolitical hotspot in varying degrees. It can be expected that there will still be a huge number of uncertainties in the future.
Final Analysis Conclusion:
The wave of anti-globalization is increasing, global trade is in disorder, and local political turmoil continues to constitute the new background in the global market. It can be estimated that in the near future, the global capital market will be in a “political market” dominated by political uncertainties.
