Will political risks still matter for markets?

(Aug 28): Financial markets have been twisting and turning in reaction to political developments in recent times. Just in the past week, the perception of growing disarray in the Trump administration and tensions in the Korean peninsula caused markets to gyrate. Last year, it was Brexit and Trump’s shock election victory. However, an interesting pattern has been evident: While a political shock initially causes huge market moves, these reactions dissipate and a few weeks or months later, it is almost as if not much has happened.

One can also say much of the political turbulence in the past year has left little residual impact on markets. For example, South Korea saw a president unceremoniously turfed out following a huge scandal that also dragged down the country’s largest business group. Another example was the elections in the Netherlands and France, which many had worried about, but these came and went without much trouble.

So, should we just stop worrying about politics and focus on market fundamentals such as earnings outlook and interest rates?