It's that time of the year for financial journalists: we are being inundated with lengthy outlook reports for the coming year.
My inbox is littered with ominous warnings about how 2017 will see more uncertainty, and the overwhelming theme for the year is: it’s the politics, stupid.
Given the rise in populist voting in 2016, which manifested itself in the shock vote for Brexit and a surprise victory for Donald Trump in the US election, investors are nervously anticipating the outcome of a hodgepodge of elections across Europe.
Here’s a quick look at what’s in store:
France will elect a new president in April and May, with Francois Fillon having been voted the nominee for the centre right Republican party this month. Fillon is now the frontrunner for the presidential run-off against far-right Front National leader, and populist favourite, Marine Le Pen.
Italy is in the process of cobbling together a caretaker government after Matteo Renzi stepped down, with foreign minister Paolo Gentiloni asked to lead the efforts as Prime Minister-designate. If that fails, new elections are on the cards, with the anti-euro Five Star Movement ranking high in the polls.
In Germany, Chancellor Angela Merkel has just confirmed she will run for a fourth term. But she is facing pressure from the far right Alternative for Germany party, which is currently polling at 13 per cent and has delivered a number of bruising regional election results for Merkel. That has pushed the Chancellor to move to the right. Last week she endorsed a country-wide ban on burqas.
Over in the Netherlands, the Freedom Party of anti Islam Geert Wilders is leading the incumbent Liberal party in the polls by 10 per cent ahead of parliamentary elections in March.
But why all the doom and gloom? Let’s not forget that this year politics has been kind to investors. Post the initial knee-jerk reaction, Brexit’s effect on sterling has led to a surge in the FTSE, which is now higher by some 11 per cent on the start of the year and has easily outperformed the rest of Europe. The Trump effect has led to 13 record closes for the Dow Jones since the election. The Dow is up 12 per cent year to date.
Read more: Why investors shouldn’t fear Brexit
Meanwhile, Italian banks saw a 12 per cent surge last week as the Italian referendum is forcing the government to finally find a solution for cash-strapped Banca Monte dei Paschi di Siena.
Gilles Moec, head of developed Europe economics at Bank of America Merrill Lynch, told CNBC: “one should also look at positive outcomes. If you take a look at the French elections there is a very clear reformist economic agenda coming from the centre right. Assuming the polls are right (and Fillon beats Le Pen), we can actually expect to see a lot of positivity in terms of market friendly reforms coming from France – a country that hasn’t seen much positivity of late.”
Equally, Steve Krouskos, EY’s global vice chair of transaction advisory services, said on CNBC on Friday that, while the big risk for 2017 was political upheaveal in Europe, the mergers and acquisitions outlook for 2017 was still very strong.
In fact, he points out that, since the US election, the country has seen over $15bn in M&A, adding that “historically, Republicans have been more pro M&A, intervening in fewer combinations. We could also see a repatriation window which would bring the $1 trillion of overseas earnings back and other moves in tax policy that would boost earnings.”