This article concludes the 2016 predictions series with views on politics and international affairs.
Clinton Wins Primary Easily; Republicans To Have A Heated Convention
Let’s dispense with the easy prediction first. Hillary will win the Democratic primary without issue. Bernie Sanders, as a self-avowed socialist, has failed to garner much support outside of his narrow base primarily among young Caucasians.
Sanders would likely be a big problem for the stock market, his anti-corporate positions on many issues would surely send tremors into the stock market.
Not that Clinton will be great for the stock market either, in all likelihood. She’s taken on an extremely firm line against the health care and biotech industries.
There has been a bloodbath in hospital stocks in the latter half of 2015 as problems with Obamacare implementation continued to go awry. But the whole health care sector will face mounting pressures as the Clinton presidential bid continues to gain strength.
The prediction for the Republicans, on the other hand, is much more difficult. In fact the company is likely to face its first brokered convention since Thomas Dewey won the nomination in 1948. A brokered convention is what happens when no candidate has 50% of the nominees committed and they have to have a debate at the convention to secure the nomination.
Trump continues to lead the party’s polls by a wide margin, but the party can’t stand the thought of him winning. Cruz, in second, is also disliked by the party. It’s not hard to see Rubio, Christie, or even Bush scooping up enough votes to force a three-way scrum with Trump and Cruz.
Until we have a clearer sense who will win the Republican nomination, and if Trump (or others) run third-party, it will be impossible to handicap the November presidential election or the impact on the economy and market.
Emerging Markets Going Down Like A Brick
2016 has all the signs of being another miserable year. Brazil is the most notable problem, with the economy shrinking by 5% in recent quarters, and GDP/capita down almost 20% now since 2011.
There’s nothing that will change the awful trajectory this year. Debt/GDP for the federal government has exploded to 70%, the state oil company, Petrobras, is heading toward bankruptcy, and the government continues to be wildly unpopular. A poorly executed Olympics performance in 2016 could be the catalyst for unleashing the next wave of the crisis.
Russia and South Africa will also continue to struggle, done in by extremely low oil and commodity prices.
China continued to show increasing strain into the end of 2015. Credit spreads are rising, off-the-record economic indicators show rising weakness, and the Yuan is poised for further devaluations. Throw in the mounting air quality scandal making all sorts of terrible headlines into the end of last year, and China is set for another difficult year. On the plus side…
India: The Sturdy BRIC
India continues to be the one major emerging market that stands apart from the rest of the troubled ones. Investors had grown somewhat skeptical about the country toward the end of the year, following some regional election results.
However India closed the year strong, with a powerful rally during the last two weeks of the year. Analysts are starting to reassess their chances for Prime Minister Modi’s reform agenda. While he’s been slower to implement change than optimists had hoped, it seems he has a second wind in store for the reform agenda.
And in the week after Christmas, when few observers were watching, Modi visited Pakistan. This made him the first Indian PM to visit Pakistan in twelve years, and international observes welcomed the surprising move toward diplomacy between the two neighbors known for their acrid relations.
With oil prices still dropping, a trend that greatly aids India, and the reform agenda and softening relations with Pakistan in play for 2016, there’s plenty of reasons to be optimistic. While this is likely to be a difficult year for many foreign stocks, India looks like it will be one of the better safe havens.