Four months ago we sat in amazement as the results of the Brexit referendum were tallied. A strong sense of déjà vu hangs in the air as the tally in yesterday’s US Presidential Election rolls in. Current projections are again a reminder as to how quickly the political landscape has shifted across the Western World. Once again the result defied the polling and suggests a much stronger undercurrent of distrust in establishment politics, this time paving the way for a maverick politician who even struggled to gain the support of many in his own party.
Widening wealth dispersion, a trend in place for several decades has only accelerated since the Global Financial Crisis. The chart below provides some indication of this trend and partly explains 2016’s unexpected political events. Political agenda’s the world over are likely to pivot back to national considerations, marking a reversal of 30 years of dismantling barriers – including global trade and immigration. Winners and losers from this shift will emerge, but its full effects are far from certain. Tax advantaged multinationals, whose unchecked rise over the last two decades could fall into the cross-hairs of more nationally minded governments. A fair share for all, by all, could re-emerge as a matter of policy expedience. Real wages, suppressed for so long by the full effects of globalisation, could reignite inflationary forces where many thought these extinct. The implication for interest rate settings, following the tidal wave of debt accumulation in recent years may be profound.
America’s political system is designed to defray power from a central figure. We need only look to how difficult America’s current President found it to implement his first term agenda. And while many on both sides of politics agree that a Washington shake-up would be a good thing, the reality of this ambition has historically proven extremely difficult to implement. Whatever new policy settings emerge, this may well be against a backdrop of higher interest rates, further complicating the investing backdrop.
Antipodes Partners’ portfolios seek to avoid the crowd in preference for eclectic expressions of neglect where the expected investment returns are underwritten by “multiple ways of winning”. Further, we have shorted expressions of late cycle speculative extremes, weak infrastructure stocks masquerading as “bond proxies” and high yield debt beneficiaries. Catalysts for unwinding these excesses are notoriously hard to predict. However, by seeking situations with asymmetric reward profiles, we stand to benefit disproportionately when they do. Market dislocations provide opportunities to acquire resilient business at distressed prices. We remain well placed to seize on such opportunities as they present themselves.