The resignation of UK prime minister Theresa May as Brexit Party leader Nigel Farage once more takes centre stage, the resurgence of the French hard right under Marine le Pen and the ascent of Hungary’s Viktor Orbán are combining to cause a major headache for private investors in Europe and beyond.
Clearly there are many more nuances at play than mainstream commentators would have us believe. The decidedly unextreme Lib Dem party performed admirably in the UK’s EU election, right-wing forces failed to overrun the Netherlands, and followers of France’s finance-friendly president Emmanuel Macron had a respectable showing, given the problems endured from pesky populist protestors in yellow vests.
Plan for the worst
But the right-wing rumblings across the continent are enough to send volatility-shy private clients heading back to their bankers, not just for reassurance, but for solid alternative plans, should things get worse. “A lot of the rhetoric around Brexit sounds really dangerous. Farage can create a lot of mischief, politically he is very similar to Marine Le Pen,” says the CEO of a leading global private banking franchise.
“Families are now looking at Malta, Portugal and Cyprus in the EU. These are the countries opening their doors with investor visas and offering facilitation of citizenship and investment projects.”
Private bankers report that “every single conversation” with Middle Eastern clients is now about contingency planning, not just about how to allocate assets and create long-term wealth structures in times of insecurity, but how to prepare for outright war. The main talking point is US president Donald Trump’s so-called “deal of the century” and what this will mean for the prospects of Middle East peace. Few are optimistic.
Key concerns of wealthy families are no longer about squeezing an extra handful of basis points from already stretched portfolios, but ensuring the future of families and their safety, in the face of trade wars, instability and most frightening of all, looming nuclear escalation.
Global families are all looking at the sobering case of Venezuela, where one of the globe’s richest countries in terms of natural resources has descended into a state of chaos and geopolitical contestation between great powers, but all through a democratic process.
“The Trade War, Middle East tension and Venezuela are all bigger issues than Brexit,” ventures Udit Garg, London-based director of Sun Global Investments, the wealth management boutique.
“If it can happen there, it can happen anywhere,” says one banker, referring to Venezuela, cynically echoing the words of Frank Sinatra’s New York, New York, a seemingly entrepreneurial anthem.
Family offices in Europe talk about a “frustration” seeping into clients’ mentalities, that they are no longer where they expected to be and that they fear greatly for their children’s safety and future prosperity.
Alternative thinking required
All of these concerns mean portfolios are moving to embrace liquid stocks, with utility-focused fixed income components once more proving popular. French banks, last year singled out as over-exposed to Turkish debt, are once more being seen as safe havens.
Direct investments, especially into cash-generating pay as you play media companies, are also coming into their own.
Most portfolio watchers believe things are unlikely to settle down any time soon. Darren Williams, chief economist at AllianceBernstein, reckons the recent European elections are “just the tip of the iceberg as far as populism is concerned”.
More significant, he says, will be the ongoing Sino-American trade war, which has already slowed global growth and dented many Asian-centric portfolios
Investors need to wake up from their 40-year sojourn on the dream-like plateau, where capital triumphed over labour. Global economic policy, suggests Mr Williams, will no longer be business-friendly. While the sunlit uplands described by Europe’s populist politicians such as UK prime ministerial contender Boris Johnson may still be in sight, they are now firmly behind us, not up ahead.
Yuri Bender is editor-in-chief of Professional Wealth Management. Follow him on Twitter @YuriBender
Register now for free access to PWM, and sign up for our newsletter
