For decades, investors became accustomed to political leaders focusing primarily on politics.
As a result, financial markets were largely driven by the longer-term interaction between economic fundamentals and public policy. Investors could focus on how fiscal and monetary decisions might influence interest rates, inflation and currencies over time, while direct political impacts on individual companies were often limited.
More recently, that relationship has begun to change. The growing interaction between politics and markets is perhaps one of the defining features of the current investment landscape. Political leaders are increasingly exerting a more direct influence on financial markets and, in some cases, on the fortunes of individual companies.
The US is perhaps the most visible example, but it is not alone. In South Korea, for example, strong government support for equity investing, combined with regulatory approval of leveraged single-stock ETFs, helped fuel both a rally and subsequent correction. The effects were felt not only in the domestic market but also across broader emerging market indices, where concentration risk has risen significantly alongside the global technology rally.
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