If you have ever wondered what impact government policy can have on your investments, stop wondering and look at China. The Hang Seng index gained 25% in one week after the Chinese government said they would introduce stimulus measures and not stop until the economy was back on a strong growth trajectory. With a 29% performance year to date, this is the best-performing major stock market in the world at the moment, after it was one of the worst. As with all things Chinese, we shall have to see if this can last.
This is not the only glaring example of how government policy can impact investments. We only have to look at our own newly elected government to see positive changes when confidence is restored, not to mention Turkey. The dictatorial president of Turkey, Recep Erdogan, believed that raising interest rates would increase inflation. Exactly the opposite is true and inflation rose to over 70% in recent years because he enforced a policy of cutting rates in the face of runaway inflation. Fortunately for his country, sanity prevailed after the people had showed in a recent election that Erdogan was delusional. In March, the central bank raised interest rates to 50% to fight the rampant inflation.
Argentina is another extreme example of how a newly elected president can change things. Javier Milei is a chainsaw-wielding anarcho-capitalist president who promised to slash the fat and greedy size of the state. He cut the number of ministries by half, devalued the currency by 50% and reduced fuel subsidies. Seems like these austerity measures are working and that international investors are at least starting to take Argentina seriously.
It is evident from the countries we have mentioned that emerging economies are the ones where the biggest policy mistakes are made, but also the markets where the best opportunities are. With the recent events in China, we have seen our Resources and Technology shares shoot through the roof. Naspers was up 20% last week, with Impala Plats up 33%, Anglo American up 12%, BHP up 14% and Kumba up 18%.
The only developed region where the markets are not performing to their full potential is Europe – because they are pro-mediocre and anti-excellence with all their regulations. Perhaps the people will realize this one day and replace the governments that are holding them back.
