The surging popularity of populist parties “is going to continue” predicts emerging-markets fund manager Mark Mobius of Templeton. As a result, the European Commission “will have to reconsider how much the European Union interferes in the behaviour of member states”. The vote for Brexit signalled to the rest of the EU that “things will have to change”, while the recent referendum defeat for Italy’s former prime minister, Matteo Renzi, merely confirmed the shift in tone.
While the US dollar has risen in the wake of Donald Trump’s victory (and last week’s rate hike by the Federal Reserve), Mobius thinks it should fall in the medium to long term due to Trump’s plans significantly to increase spending on infrastructure and defence, thus increasing the national debt.
This fiscal action is needed, as US monetary policy has been ineffectively “pushing on a string” for some time. In any case, the dollar will need to be significantly weaker if Trump is going to fulfil his campaign promises of an industrial revival in the American Midwest, which would need to be driven by manufacturing exports.
Oil prices may rise further, but not much beyond $60 a barrel, so Gulf States – including Saudi Arabia – will have to continue to diversify to reduce their dependence on oil. These efforts will take time to bear fruit, yet even a partial reform of the Saudi economy could provide a big boost for the Arab market. However, Mobius would avoid investing in Egypt – “it’s hard to get your money out once you put it in”.