WeeklyWatch – Markets remain calm despite political turmoil

10^th December 2024

Stock Take

The news this year has largely been dominated by the UK and US elections, as well as the conflict in Ukraine and the Middle East. As we head to the end of 2024, however, it’s France and South Korea drawing the focus.

French divisions

On Wednesday last week, French Prime Minister Michel Barnier stepped down after losing a vote of no confidence.

There’s currently a division in the French parliament between President Macron’s centrist party, a left-wing alliance and the right-wing National Rally. The prime minister had attempted to navigate this challenging dynamic to secure approval for next year’s budget, but failed to find a compromise that could win the support of two of the three factions.

Barnier’s resignation presents Macron with a significant challenge. As president, he has the authority to appoint the next prime minister, but the nominee must gain parliament’s approval to avoid the same issues as Barnier. With Macron having no option to call another election until mid-2025, Barnier’s successor will face the same challenges until then. Nevertheless, Macron announced on Friday that he intends to name the new prime minister in the coming days.

Ripple effect on the markets

In the aftermath of Barnier’s resignation, Partner at TwentyFour Asset Management Felipe Villaroel identified a contrast between the political disruption and fairly calm response from the financial markets in the recent fallout. He stated:

“As opposed to previous problematic episodes in the eurozone, there is no imminent threat of a ‘Frexit’. A US-style government shutdown scenario is not on the cards; if there is no support for a new budget, then a version of 2024’s would apply next year. This means the French government can continue receiving taxes, spending monies and, most importantly, paying bond coupons. Therefore, from a markets perspective the worst-case scenario here is far less damaging than previous examples of government budget stand-offs.”

There was a surprise rise in the Euronext France CAC 40 Index by 2.78% last week, with improved performance in the later part of the week.

Uproar against martial law

Following close on the heels of France’s chaos came the unfolding events in South Korea when President Yoon Suk Yeol attempted to enact martial law on the country. His attempt failed when the country’s National Assembly rejected it, but the full implication of the political fallout is unclear.

Attempts were subsequently made to impeach Yoon, but these failed when his party wouldn’t back the motion. Calls for Yoon’s resignation have continued, and Yoon is currently under an international travel ban.

There was a notable response to the fallout with a resulting fall in the Korea Stock Exchange of 1.13% in local currency.

Wider political relations unfold across Asia

The exchanges between China and the US regarding their trade war continued last week. China announced that they were placing restrictions on a number of rare earth mineral exports to the US. These minerals are highly important in the US’s manufacturing of a wide variety of technologies which includes semiconductors.

Head of Asia and Middle East Investment Advisory at St James’s Place, Martin Hennecke, comments on the latest developments:

“Events like the political turmoil in South Korea or the rare earth export restrictions applied by China in response to new semiconductor export restrictions by the US are hard to predict. It can serve as a good reminder of the importance of the three factors of diversification: avoiding short-term speculation as well as avoiding leverage coupled with overconfidence on specific predictions.”

How did this affect the markets?

China’s attempts to cause disruption for the US wasn’t enough to prevent the S&P 500 securing a record high at the end of last week. Jobs data announced on Friday continued to boost the expectation of another interest rate cut.

On home soil, the FTSE 100 ended the week pretty flat, even though the Bank of England Governor, Andrew Bailey, told the Financial Times that he was aiming to initiate four interest rate cuts in 2025, and at the end of the week house prices hit a record high.

Wealth Check

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The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is generally dependent on individual circumstances.

In The Picture

The political challenges that South Korea and France are facing aren’t new – both countries have been struggling this year.

Past performance is not indicative of future performance.

Please note it is not possible to invest directly into a financial index and the figures shown do not take into account any charges applicable to the appropriate investment wrapper or any relevant tax charges.

The Last Word

“The developments in Syria in recent hours and days are unprecedented, and we are speaking to our partners in the region and monitoring the situation closely.”

– UK Prime Minister Sir Keir Starmer comments on the fall of Syria’s Bashar al-Assad.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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SJP approved 09/12/2024