Investors concerning themselves about the European elections causing volatility in the equities markets should be preparing themselves for a complacent market that struggles to cope with risk, according to AllianceBernstein (AB).
AB portfolio manager of Australian equities, Hamish FitzSimons, said that investors had been scared off prior to the European elections as a result of the rise of US President Donald Trump.
“This is particularly challenging for investors because recent events have demonstrated that we’re in a climate where election results and their effects can be quite unpredictable,” FitzSimons said.
“Investors are understandably confused by the fact that, while the upcoming elections in Europe could potentially cause global market volatility, some indicators of market risk levels look surprisingly relaxed.”
Polls had still been volatile ahead of general elections which would take place in the Netherlands today, while the two-round presidential election in France in late April could cause a stir on anti-European Unionism, which AB said would likely have a flow-on effect for equity markets.
FitzSimons said investors should be ready to face any number of outcomes.
“This unpredictability broadens the possible range of policy outcomes and increases the uncertainty as to how markets will react,” he said.
“This is not particularly reassuring for investors, or the advisers on whom they rely to navigate these choppy waters.”
The recommendation for investors would be to boost their knowledge and broaden their emotional capacity to deal with risk.
“If investors don’t like volatility or the difficulties involved in anticipating it, they could consider using a low-volatility equity strategy,” FitzSimons said.
