How politics impact markets

The experts

Jack Ablin Chief investment officer at BMO Private Bank in Chicago

Marc Dalpé Portfolio manager at Dalpé Milette, Richardson GMP in Montreal

Issue 1: U.S. presidential election

Ablin: Hillary Clinton will likely win the Democratic nomination; it’s not clear who’ll be on the Republican ticket. “I would say the election is a non-event for the markets.”

Dalpé: “Whoever gets elected, Republican or Democrat, I don’t think it’ll have a lasting impact on markets.” A key reason is the executive branch has limited powers, except under extreme circumstances like war or financial crises. “It’s not like Canada, where if there’s a majority, the prime minister can do pretty much whatever he wants.”

Issue 2: Russia-Ukraine

Ablin: The situation affects European access to natural gas. And, “initially, we saw corn prices rise dramatically. Ukraine is one of the biggest producers of corn, so there was fear [it] would be taken out of the market in some way. But that has since abated.” He adds investors often react to headlines, “but if a headline doesn’t stay in the news, it tends to be forgotten.”

Dalpé: Some argue the turmoil presents an opportunity to invest in Russia: its market “got clobbered in the last 12 months” because of the Ukraine situation, combined with halved oil prices and a falling ruble. While Dalpé says this analysis is probably correct, he’s staying away. “We touch pretty much everything, but we don’t touch Russia.”

Issue 3: If Iran gets the bomb

Ablin: “It changes the calculus on geopolitics, but I’m not sure how it would translate into an actionable investment thesis.”

Dalpé: If Iran gets the bomb, the country will be constrained by the same logic that kept the U.S. and Soviet Union from firing nukes: mutually assured destruction. That said, the bomb would enhance Iran’s power and status in the Middle East, which would mean more leverage and bargaining power.

Issue 4: ISIS

Ablin: “I don’t think it’s impacting investment strategies yet. It’s a geopolitical uncertainty, so you’ll see knee-jerk reactions.”

Dalpé: Many argue ISIS is attempting to establish a state on defined territory. “That’s why there seems to be more of a concerted effort to attack the situation. Arab countries are getting publicly involved to limit the growth of this organization, perhaps because they feel it has more traction than others.” He says it’s likely impacting markets, but the effect is hard to quantify.

Interviewed by Dean DiSpalatro, senior editor of Advisor Group