As the great 20th-century philosopher Robert Allen Zimmerman (a.k.a. Bob Dylan) once said: “The times they are a-changing.” The song he wrote became a hit almost exactly 60 years ago. He prophetically predicted the seismic shifts the Western world would enter in the late 1960s and 1970s. More than half a century later, the words of his song ring true, but the changes are in the opposite direction of those Mr. Dylan wrote about.
Politics in the Western world is shifting right, whether one calls this growing movement populism, nationalism, Trumpism, far-right conservatism or anything else. You may love it or hate it, but it is coming, and the movement will acquire more political power.
Mr. Dylan’s song also has a less iconic line in it: “The order is rapidly fading. And the first one now will later be last.” Mr. Dylan is not only prophetic, but he gives some excellent investment advice. The world is changing, and this will significantly affect investment markets globally. Some countries will prosper while others will incur severe economic hardship.
When I began my career in the early 1980s, a mentor gave me some incredibly useful advice. Many in our investment department professionals were highly politicized. It was right after the implementation of the National Energy Program, which exacerbated the recession in Canada, and there was a backlash against the Pierre Trudeau government. My boss admonished me to try to be completely objective and see the implications of policies rather than support or oppose them and to put my personal feelings aside. Great advice indeed.
Nationalist movements are rising from Holland to Hungary, from Poland to Italy and from Austria to India. Some recent elections demonstrate this trend. However, they also show there are significant exceptions.
Narendra Modi’s nationalist Bharatiya Janata Party, won the Indian election, albeit with less of a mandate than expected. In the latest year, Indian GDP has increased by 7.6 per cent. Over the last five years under Mr. Modi, the economy has grown by an average of 4.2 per cent annualized despite the pandemic.
In contrast, Mexico elected Claudia Sheinbaum as President with almost 60 per cent of the vote. She is a former climate scientist and leans left. She promises to concentrate on social-welfare programs. Given that the GDP per capita of Mexico is only $11,500, that task will not be simple and will come at a dramatic cost.
Adding to Mexico’s issues is that Donald Trump has a 50-per-cent to 60-per-cent probability of winning the U.S. election in November. He could make things difficult for the Mexican economy as he is a protectionist and very unhappy about the border issue.
In 2023, total trade between the U.S. and Mexico was valued at US$800-billion. Given that Mexico’s entire GDP is about US$1.5-trillion, Mr. Trump will have the upper hand and will use it. Mexico’s GDP grew at 2.4 per cent over the last year and 0.7 per cent annualized over the last five years. Bluntly, the Mexican economic miracle is over and has been for a while despite Americans and Canadians marvelling at the low food prices while on vacation.
EU election sentiment demonstrates that the nationalist right is gaining ground as people continue to be frustrated by chronic economic weakness in Western and Southern Europe and the cultural changes occurring because of mass migration.
The EU’s ability to dictate policy to countries with populist governments such as Hungary, Poland and others will be hampered. In fact, this may be the beginning of the end of the EU. There will be outliers like Mexico, and the British election, slated for July 4, will undoubtably be a Labour Party landslide unless some miraculous event occurs. Germany and Canada will not go to the polls until late 2025 and the world will be a very different place by then given the dynamic changes that are taking place.
Mass demonstrations are happening in Europe and North America against the status quo. Mr. Trump is favoured, right now, to win in November but that outcome is far from a sure thing and underestimating the electoral organizational abilities of the Democrats and their allies in the media would be foolish.
Economic policy does, in time, affect GDP growth. GDP growth affects corporate profits, which in turn affect stock markets. Inflationary policies affect bond yields. The investor will have to make two decisions. One is whether growing political instability and change will negatively affect the global and local economies. The other decision – and the more important one – is which view of the future does one believe will result in economic prosperity.
On one hand, we have a progressive/globalist model that is the current norm in Canada, Britain (certainly after the expected Labour Party win) and other countries like France and Spain. On the other, we have the capitalist/nationalist model of countries such as Hungary, Argentina and the United States under Mr. Trump.
Pick a team and invest accordingly.
For those on Team Progressive/Globalist, there is the Mexico ETF, iShares MSCI Mexico ETF (EWW). The U.K. iShares FTSE 100 UCITS ETF (ISF) may do well, though I personally doubt it. The iShares MSCI France ETF (EWQ) might be more attractive. France looks like less of a mess than Britain.
Team Capitalism/National has the following opportunities: The MSCI Argentina ETF (ARGT). The iShares MSCI Poland ETF (EPOL). The iShares MSCI Israel ETF (EIS). Investing in Israel might seem risky because of the war but it is a rare opportunity to invest in an industrialized country with high growth rates. I like iShares because they have such a large and diverse portfolio of low-fee ETF’s.
If you don’t want to pick a side, you can diversify and pick all of these. Personally, I’m with Team Capitalism and its 2½-century winning streak.
Tom Czitron is a former portfolio manager with more than four decades of investment experience, particularly in fixed income and asset mix strategy. He is a former lead manager of Royal Bank of Canada’s main bond fund.
Editor’s note: A previous version of this article incorrectly stated the value of Mexico's GDP as US$1.5-billion. It is US$1.5-trillion. This version has been updated. This article was further updated to correct the reference to the National Energy Policy. The correct name of the federal policy was the National Energy Program.