There was a time when – other than in war - Americans we didn’t have to care much about the comings and goings of governments or leaders in other countries. But in today’s increasingly interdependent world, our portfolios are no longer immune from what happens in other countries. Many of our largest companies source and sell in these markets – and when leaders change, policies change and that can impact markets broadly and specific stocks in our portfolios.
We present here three leaders whose policies and actions we are closely watching.
Shinzō Abe, the newly elected Prime Minister of Japan has promised aggressive monetary easing by the Bank of Japan and big fiscal spending by the debt-laden government to reverse deflation and weaken the yen to make Japanese exports more competitive. This reversal in policy has made Japanese stocks rise sharply in recent days. But with the Yen weakening even as stocks rise – the investment challenge is in capturing stock gains and avoiding currency losses.
Xi Jinping, the new head of the Chinese Communist Party, hinted at supporting more market oriented economic policies to move China toward a more sustainable growth model - that relies more on domestic consumption rather than infrastructure investment and exports, and where state enterprises play less of a role. More financial transparency is good, and how will the focus on domestic consumption growth affect the prospects of US blue-chip, multi-nationals serving the Chinese market.
European Central Bank President Mario Draghi stabilized the markets by securing the support of German Chancellor Angela Merkel for ECB’s unlimited bond-purchase program to regain control of interest rates in the euro area, fight speculation of a currency breakup and save the European Union. But his arch nemesis Bundesbank President Jens Weidmann has not yielded and new political moves in Italy and Spain have to handled deftly because any concern about Eurozone stability could have a devastating impact on global markets.