his year has been a very interesting one thus far. Stock markets across the globe may have risen in general, but they have been volatile. Risks remain on a global scale and this year has shown they could flare up without warning at any time. And with the situation in Europe being relatively uncertain, it has been somewhat surprising that investor sentiment has remained robust.
Geopolitical tensions
While the conflict in Syria and the instability in North Korea were present last year, 2017 has shown that they can escalate exceptionally quickly. In Syria, for example, the US took military action in a matter of hours following a suspected chemical weapons attack. Regarding North Korea, it was recently announced that an era of strategic patience from the US was now over. While this may not mean military action in the near term, this year has reminded investors that conflict can flare up without warning.
The effect on share prices from such events is usually highly negative. Investors generally dislike uncertainty, and so while 2016 saw its fair share of surprises when it came to political events such as the US election and Brexit, this year has shown that geopolitical events on a larger and more serious scale may never be too far away.
Instability in Europe
While a loose monetary policy has aided the EU economy in recent years, 2017 has shown that the regionâs political union remains unstable. French elections are just around the corner and there is scope for a surprise. While investors may have priced this in to an extent, Brexit showed that sometimes pollsters can be wrong and unexpected results can hurt markets.
Looking ahead, the UK election could also cause a degree of uncertainty in future. As such, while emerging markets may represent the growth areas of tomorrow, Europe is still likely to have a significant impact on share prices across the globe. As one of the key consumer hubs in the global economy, if Europe experiences lacklustre economic performance then it is bound to slow down the rest of the world economy.
Robust sentiment
Despite the challenges faced by investors in 2017 thus far, sentiment has remained relatively robust. For example, the S&P 500 has risen by 4.7% since the start of the year and other major indices are also generally higher. Investors seem to be willing to look to the long-term future for the global economy, rather than focus on short-term challenges.
For example, they seem to be anticipating major spending in the US, which could stimulate the world economy. Similarly, China remains a favoured investment play due to the potential for increasing demand for consumer goods. Meanwhile, doubts about the EUâs economic performance seem to have been pushed to one side, due in part to the accommodative monetary policy which has been put in place.
Whether investor sentiment will remain resilient is a known unknown. As ever for Foolish investors, investing in high-quality companies trading at discount prices seems to be the best strategy to adopt in order to generate above-average returns in the long run.
